Insights

The Medicare Surcharge That Surprises Most Retirees

Waypoint Wealth Services5 min read

Imagine opening a letter from Social Security — months after enrolling in Medicare — informing you that your monthly premiums are significantly higher than your neighbor's for the exact same coverage. No appeal. No warning. The income that triggered it was earned two years ago. This is IRMAA, and it catches more retirees off guard each year than most people realize.

IRMAA — the Income-Related Monthly Adjustment Amount — is a surcharge added to Medicare Part B and Part D premiums when your Modified Adjusted Gross Income (MAGI) exceeds certain thresholds. For 2026, the standard Part B premium is $202.90 per month. With IRMAA applied at the highest tier, that monthly premium can reach up to $689.90 — more than three times the base rate. Managing your income in the years before and during Medicare enrollment may help keep you in the lower brackets.

How the 2026 IRMAA Thresholds Work

The surcharge structure in 2026 follows a five-tier bracket system. For single filers, the first surcharge begins when MAGI exceeds $109,000. For married couples filing jointly, that threshold is $218,000. Cross either line by even one dollar and the full tier surcharge applies — there is no gradual increase. That single dollar can cost hundreds more per year in Medicare premiums.

Part D prescription drug coverage carries its own IRMAA surcharge as well, using the same income thresholds as Part B. So a household that crosses a threshold can see higher costs on both fronts simultaneously.

The income used to set your 2026 IRMAA is from your 2024 federal tax return — specifically, your MAGI from two years prior. That two-year lookback is the detail that most often blindsides new retirees. By the time a surcharge notice arrives, the income that triggered it is in the past and no longer adjustable. Municipal bond interest — which many retirees assume is "tax-free" — counts in the MAGI calculation too, which adds another layer of surprise.

The two-year lookback means decisions made today about Roth conversions, asset sales, and retirement distributions are quietly shaping Medicare costs two years from now.

Why This Hits Retirement-Age Households Hard

The years just before and just after turning 65 tend to be when income can look misleadingly high to Medicare's formula. A partial year of wages, a large IRA withdrawal to fund retirement expenses, a Roth conversion, or the sale of a business or investment property can all push MAGI above a threshold — producing a surcharge the following year that the retiree didn't anticipate.

Consider a married couple who takes a $250,000 distribution from a traditional IRA in 2024 to pay off a mortgage before retiring. Even if their ongoing retirement income would normally fall well below the first IRMAA tier, that single distribution could push their 2024 MAGI above $218,000, triggering a surcharge that affects their 2026 Medicare premiums. The mortgage is paid; the bill still arrives.

This is especially relevant for couples where one or both spouses are approaching Medicare enrollment in 2026 or 2027. The income you report on your 2024 and 2025 returns determines what you pay in 2026 and 2027 premiums, respectively — and those returns may already be filed.

Strategies Worth Discussing With Your Advisor

There are planning approaches that may help manage MAGI in the years leading up to and during Medicare enrollment. None of them are one-size-fits-all, and each carries its own trade-offs worth examining carefully:

  • Staggering Roth conversions over multiple years rather than converting large sums in a single year — conversions add to MAGI in the year they occur, and spreading them may keep income below a threshold, though this also spreads the tax cost across years and the appropriate pace depends on individual tax rates and projections.
  • Sequencing withdrawals thoughtfully by drawing from Roth accounts, taxable brokerage accounts, or HSAs in years when MAGI control matters — keeping in mind that each account type has different tax treatment and withdrawal rules.
  • Timing capital gains from investment sales in years when overall income is lower, recognizing that realized gains flow into MAGI regardless of whether they are long-term or short-term.

It is also worth knowing that IRMAA is not permanent once triggered. If your income decreases in a subsequent year — for instance, because the large one-time event doesn't recur — your premiums can adjust downward with it, based on the following year's tax return. And if you've had a life-changing event like retirement or a reduction in income, the Social Security Administration does allow you to appeal IRMAA using more recent income data rather than the two-year lookback.

Common questions

What income does Medicare use to calculate my 2026 IRMAA surcharge?

Medicare uses your Modified Adjusted Gross Income (MAGI) from your 2024 federal tax return to set your 2026 premiums. MAGI includes wages, IRA withdrawals, capital gains, and tax-exempt interest income such as municipal bond interest. The two-year lookback means your 2026 surcharge reflects financial decisions made in 2024.

What is the first IRMAA income threshold in 2026?

The first surcharge begins at $109,000 MAGI for single filers and $218,000 for married couples filing jointly. These thresholds increased modestly from 2025 levels. Crossing either threshold by any amount — even one dollar — triggers the full surcharge for that bracket tier, so income planning around these cutoffs can matter significantly.

Can you appeal an IRMAA surcharge?

Yes. If you've experienced a qualifying life-changing event — such as retirement, marriage, divorce, or a significant drop in income — you can ask the Social Security Administration to use a more recent tax year's income rather than the two-year lookback. You must file a reconsideration request within 60 days of receiving the IRMAA notice. A financial advisor familiar with Medicare planning can help you determine whether an appeal is likely to succeed in your situation.

Sources

This article is for educational purposes only and does not constitute financial, tax, or legal advice. Individual circumstances vary. Please consult qualified professionals for advice specific to your situation.