You open your Medicare premium notice and notice something unexpected.
The amount is higher than you anticipated.
Maybe you've recently retired and expected your income - and some of your expenses - to settle into a new pattern. Or perhaps you had an unusually high-income year that feels like ancient history now.
So why is Medicare charging you more?
One possible explanation is something called IRMAA.
It's not the most memorable acronym, but understanding what it means can help you make sense of your Medicare costs and how they fit into your broader financial picture.
What Is IRMAA?
IRMAA stands for Income-Related Monthly Adjustment Amount.
It's an additional premium amount that applies to Medicare Part B and Part D for certain beneficiaries whose income exceeds specified thresholds.
Not everyone pays IRMAA.
But if it applies to you, it can increase your Medicare costs beyond the standard premiums.
And here's something that surprises many people:
The income used to determine IRMAA generally isn't your income today.
Why Medicare Looks at an Earlier Tax Return
Social Security generally uses federal tax return information from two years earlier when determining whether IRMAA applies.
For example, your 2026 IRMAA determination would generally be based on income reported on your 2024 federal tax return.
Think about how much can change in two years.
You may have retired, reduced your working hours, sold an investment, or made a significant retirement-account decision.
Your current income might look very different from the income reported on that earlier return.
Yet that earlier tax information may still be affecting what you pay for Medicare.
This doesn't necessarily mean there's a mistake. It's part of how the IRMAA determination generally works.
What Income Does IRMAA Consider?
IRMAA is generally based on modified adjusted gross income, often shortened to MAGI.
For IRMAA purposes, MAGI generally means your adjusted gross income plus tax-exempt interest income.
That means some financial decisions can have consequences beyond the year in which they occur.
For example:
Roth conversions: Converting money from a traditional retirement account to a Roth account may create taxable income.
Investment sales: Realizing capital gains may increase your reported income.
Retirement distributions: Certain withdrawals from tax-deferred retirement accounts may increase taxable income.
Other income changes: Business income, compensation, or other taxable events may affect the amount Social Security uses.
None of these decisions is automatically good or bad because of its potential IRMAA impact.
A Roth conversion, for example, might still make sense as part of a longer-term retirement and tax strategy.
The important point is that Medicare premiums can be one more consideration in a financial decision.
What If Your Income Is Lower Now?
This is where the distinction becomes particularly important.
Suppose you've retired since the tax year Social Security is using.
Your current income may be substantially lower, but your Medicare premiums may still reflect what you earned while working.
In certain circumstances, Social Security may make a new IRMAA determination following a qualifying life-changing event.
Examples can include retirement or a reduction in work hours, depending on the circumstances.
However, not every decrease in income qualifies for a new determination.
A one-time investment sale or Roth conversion that increased your income generally isn't, by itself, a qualifying life-changing event.
That's why it's important to understand both the income figure being used and the reason your financial circumstances changed.
Social Security can explain the determination and the applicable process.
Why This Matters for Retirement Planning
Medicare premiums are one part of your retirement expenses.
But they're also connected to decisions involving taxes, investments, retirement distributions, and the timing of income.
A financial decision that looks reasonable when considered in isolation may have effects elsewhere in your plan.
That doesn't mean every decision should revolve around minimizing Medicare premiums.
It means the potential effects deserve a place in the conversation.
When reviewing a Roth conversion, an investment sale, or retirement income strategy, it's worth asking how the decision may affect your overall tax picture and future Medicare costs.
Sometimes the best decision involves balancing several considerations rather than focusing on just one number.
Three Questions Worth Asking
If you've received a Medicare premium notice that surprised you, start here:
1. Which tax year is Social Security using?
Understanding the lookback period helps explain where the income figure came from.
2. Was there something unusual about that year's income?
Review your tax return for events such as retirement distributions, Roth conversions, or realized capital gains.
3. Has your income changed because of a qualifying life-changing event?
If so, ask Social Security whether a new IRMAA determination may be available and what documentation is required.
These questions won't resolve every situation, but they can help you understand what you're looking at before deciding what to do next.
And if you're wondering how retirement income decisions, taxes, and Medicare costs fit into your overall financial plan, we'd welcome a conversation.
A higher Medicare premium may be unexpected. Understanding why it happened is a useful place to begin.
Wisdom Financial is a DBA of John Boyer, Inc. Fee‐based advisory services offered through John Boyer, Inc, a Registered Investment Advisor. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP® in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
