One Dollar Can Cost Thousands in Retirement
A single extra dollar of annual income can push retirees into higher Medicare premium brackets due to Income-Related Monthly Adjustment Amount (IRMAA) surcharges. The premium increases are triggered at specific income thresholds and can cost thousands over time. Job searches are taking longer and Americans are burning through up to $50,000 in savings during unemployment periods.
- The Income-Related Monthly Adjustment Amount (IRMAA) was established by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, and the surcharges first went into effect in 2007 for Part B premiums. Surcharges for Part D prescription drug plans were added in 2011. - Eligibility for these surcharges is determined by a two-year lookback at your income, meaning your 2026 premiums are based on your 2024 tax return. The Social Security Administration (SSA) reviews your income annually, so you may be subject to IRMAA one year but not the next. - The income calculation is based on your Modified Adjusted Gross Income (MAGI), which starts with your Adjusted Gross Income (AGI) and adds back certain deductions, such as tax-exempt interest from municipal bonds. - For 2026, the IRMAA surcharges begin for individuals with a MAGI over $109,000 and for married couples filing jointly with a MAGI over $218,000. - These surcharges apply to premiums for both Medicare Part B (medical insurance) and Part D (prescription drug coverage), regardless of whether you have Original Medicare or a Medicare Advantage plan. - You can appeal an IRMAA determination if you believe the income information used was incorrect or if you've experienced a life-changing event, such as retirement, divorce, or the death of a spouse. - Strategies to manage income and potentially avoid triggering the surcharges include making qualified charitable distributions from an IRA, converting funds to a Roth IRA, and delaying Social Security benefits. - The income brackets used to determine IRMAA surcharges are adjusted each year for inflation. A new, higher income bracket was added in 2019 for those earning $500,000 or more.
