Understanding How Income Changes Affect Medicare Premiums

Medicare beneficiaries should be aware that income changes from two years prior can influence Medicare Part B and Part D premiums. For instance, financial activities such as Roth conversions, required minimum distributions (RMDs), or property sales conducted in 2024 could significantly impact 2026 premiums due to the income-related monthly adjustment amount (IRMAA). IRMAA thresholds are strict, and just exceeding them by a single dollar can lead to higher premiums. This affects an estimated 8% of Medicare Part B participants, according to the Centers for Medicare & Medicaid Services (CMS).

Income events that individuals voluntarily initiate, such as converting a Roth IRA or selling a home, do not qualify for appeal on the basis of reducing surcharges, unlike certain life events that lower income and are eligible for reconsideration via Form SSA-44. These include marriage, divorce, death of a spouse, job loss, or a reduction in work.

The IRMAA calculation is derived from the modified adjusted gross income (MAGI) on one's federal tax return from two years prior. MAGI includes adjusted gross income plus any tax-exempt interest, such as that from municipal bonds. Medicare uses this figure to determine the Part B and Part D surcharges.

In 2026, the standard monthly premium for Part B is $202.90. When MAGI exceeds specific thresholds, additional surcharges apply per person, monthly. For example, for joint filers, an income over $218,000 but not exceeding $274,000 results in a $284.10 Part B premium and a $14.50 Part D surcharge.

A couple who had a MAGI of $275,000 in 2024 due to a $60,000 Roth conversion moved from a lower premium tier to a higher one, increasing their monthly costs significantly. Planning for such events should account for two years in advance to avoid unexpected premium hikes. Calculating potential surcharges alongside tax savings is crucial to ensure financial decisions are beneficial overall.

Establishing a strategy with the assistance of tax professionals or financial advisors can help retirees navigate these challenges and make informed choices. By staying informed and proactive, individuals can better manage the interactions between their income management and Medicare costs.