How Medicare premiums work
Medicare Part B covers outpatient medical services. Medicare Part D covers prescription drugs. Both carry monthly premiums that most enrollees pay throughout retirement. For most people, the standard Part B premium is deducted directly from Social Security payments.
What many people do not realize until they enroll is that these premiums are not fixed. They are income-tested — meaning higher-income individuals pay more. The additional charge is called the Income-Related Monthly Adjustment Amount, or IRMAA.
The two-year lookback
IRMAA is calculated using modified adjusted gross income (MAGI) from two years prior. Medicare premiums in 2025 are based on 2023 income. Medicare premiums in 2026 are based on 2024 income.
This two-year lookback has a practical consequence for retirement planning: income decisions made during the working years or early in retirement affect Medicare costs years later. A large Roth conversion, a business sale, or a year of unusually high income can produce IRMAA surcharges two years after the fact — often as a surprise to people who no longer have that income.
IRMAA surcharges are not applied to a single dollar amount. They are assessed by tier — crossing into a higher income bracket adds the surcharge to every dollar of premiums in that tier. One dollar of additional income can trigger a step increase in annual Medicare costs.
The IRMAA tiers (2025)
The following thresholds apply to 2025 Medicare premiums, based on 2023 income. These figures are adjusted annually for inflation.
| 2023 MAGI (married filing jointly) | 2025 Part B monthly premium | Additional monthly surcharge vs. standard |
|---|---|---|
| $206,000 or less | $185.00 | None |
| $206,001 – $258,000 | $259.00 | +$74.00 per person |
| $258,001 – $330,000 | $370.00 | +$185.00 per person |
| $330,001 – $400,000 | $480.90 | +$295.90 per person |
| $400,001 – $750,000 | $591.90 | +$406.90 per person |
| Above $750,000 | $628.90 | +$443.90 per person |
Part D surcharges are calculated separately and added on top of the plan's base premium. Both Part B and Part D IRMAA surcharges apply per person, so a married couple can face twice the surcharge if both are enrolled in Medicare.
How retirement income decisions interact with IRMAA
Several common retirement income events can push modified adjusted gross income above IRMAA thresholds: Roth conversions, required minimum distributions, capital gain realizations, Social Security income, and portfolio withdrawals from pre-tax accounts. Because these income sources often arrive simultaneously in retirement, the combined total can cross IRMAA tiers without any single source being especially large.
Managing IRMAA exposure is one reason withdrawal sequencing and Roth conversion sizing are coordinated with IRMAA thresholds each year. A conversion plan that ignores IRMAA may produce a tax efficiency gain on the conversion while creating a larger Medicare cost two years later.
Appealing an IRMAA determination
If income in the most recent tax year was lower due to a qualifying life event — retirement, reduction in work, divorce, or death of a spouse — it is possible to file a formal appeal with Social Security requesting that a more recent year's income be used for the IRMAA determination. This is worth pursuing when someone has recently retired from a high-income position and is being assessed IRMAA based on their final working year's income.
The appeal process involves submitting Form SSA-44 with supporting documentation. Approval is not guaranteed, but it is a legitimate avenue that is often overlooked.
Where Medicare fits in a coordinated plan
Medicare enrollment and premium planning does not operate independently of other retirement decisions. It connects to Social Security timing, Roth conversions, and the withdrawal sequence — all of which affect MAGI in the years that determine premium costs. A coordinated retirement plan accounts for IRMAA thresholds when sizing conversions and modeling income each year, rather than treating Medicare as a fixed cost.