Episode 57
IRMAA: The Scariest Part of Retirement Planning
Published on Oct 28th, 2026
Episode Summary
Episode 57 of Retirement Tax Matters unpacks (in a seasonal Halloween edition) why Medicare IRMAA surcharges are sometimes considered the scariest part of planning for high net worth retirees. Garrett Crawford, CFP® and Adam Reed explain how the two year lookback period and cliff penalty structure create a frustrating tax trap that catches many families by surprise. Attempting to navigate moving income thresholds can lead to poor financial planning, where accidentally converting a few dollars too much into a Roth IRA triggers thousands in additional Medicare premiums. However, the conversation shifts to reframe these surcharges by looking at the actual numbers, noting that IRMAA rarely adds more than one to three percent to a family's effective tax rate. For families with portfolios in the $2M to $8M range, intentionally pushing through an IRMAA threshold to execute a large Roth conversion can be a winning strategy to protect a surviving spouse or future beneficiaries from much higher tax brackets down the road. By utilizing a tax return driven financial planning approach before the December 31st deadline, retirees can stop missing the forest for the trees and confidently make decisions that support their retirement and family goals.
Key Tax Planning Questions
Question 1: What income counts toward Medicare IRMAA surcharge thresholds?
The official rulebook used by the Social Security Administration, known as POMS (Program Operations Manual System), states that your Medicare Part B and Part D premiums are determined by your Modified Adjusted Gross Income, or MAGI.
Fortunately, calculating MAGI doesn’t require a complex spreadsheet. For most households, it comes down to two specific lines on page one of your Form 1040: your Adjusted Gross Income on Line 11, plus any tax-exempt interest reported on Line 2a.
Your Adjusted Gross Income already includes almost every common source of retirement income. That means your wages, pension payments, taxable Social Security benefits, RMDs from pre-tax IRAs, Amounts converted to Roth from pre-tax IRA, taxable interest, ordinary dividends, and realized capital gains are all added together.
Where many retirees in the $2M to $8M range get caught off guard is tax-exempt interest. For many this is tax-exempt interest income from municipal bonds.
A lot of high-net-worth retirees buy municipal bonds under the assumption that the income is completely tax-free and invisible. While municipal bond interest escapes federal ordinary income tax, the government specifically requires Social Security to add it right back into your income when calculating Medicare surcharges. That means a large municipal bond portfolio can push your household over an IRMAA threshold even if your ordinary taxable income looks low enough for Medicare IRMAA threshold purposes.
The other detail that catches people by surprise is the timing. Social Security determines your current year Medicare premiums using the most recent federal income tax return provided by the IRS, which is generally from two tax years prior.
For example, your 2026 Medicare premiums are based on the tax return you filed for the 2024 tax year. If that return is unavailable, Social Security can look back up to three years prior.
Question 2: Is triggering IRMAA surcharges bad financial planning?
Financial planning can be a subjective discipline. It is a mixture of art and science, balancing personal goals and human emotions with mathematical analysis, tax code rules, and investment theory. If you line up ten credentialed financial planners and present them with the exact same scenario, each one might recommend a slightly different strategy. That variability is normal and healthy.
However, in my years working with clients, I often point out that while good planning can be subjective, there are a few examples of objectively bad financial planning. Accidentally triggering a Medicare IRMAA surcharge by a few dollars is one of them.
Because Medicare IRMAA operates as a cliff penalty rather than a progressive tax bracket, crossing an income threshold by even twenty dollars triggers the entire surcharge for the full year. For a married couple in 2026, crossing the initial $218,000 threshold pushes you into IRMAA Tier 1, adding roughly $2,300 in combined Part B and Part D premiums for the household. If an advisor runs a year-end Roth conversion that pushes you over that threshold by only $500, you just paid $2,300 in government surcharges to convert $500. Mathematically, that is bad planning.
Triggering an IRMAA surcharge intentionally, on the other hand, is not bad financial planning at all. In fact, it can be a winning long-term financial planning strategy.
The difference comes down to intent and scale. If a year-end tax projection shows that a household is going to cross an IRMAA threshold anyway, or if doing so allows us to convert a significant sum of money out of a traditional IRA into a Roth IRA, the math can change significantly. When you convert $50,000 or $100,000 into a Roth IRA and enter a new IRMAA tier, that extra IRMAA surcharge may often amount to an extra 1-3% percent on that transaction. Unwanted? Sure. A cost that may be surmountable with long-term tax free growth? Yes.
In practice, if you are going to cross an IRMAA threshold, you may want to go all the way through to the top of that specific tier or marginal tax bracket. For a household with a multi-million dollar portfolio, paying an extra $2,000 in Medicare premiums today to shelter $60,000 in a tax-free Roth IRA can protect a surviving spouse from severe bracket compression later in life and keep future Required Minimum Distributions from forcing you into higher IRMAA tiers in your later years.
Triggering IRMAA is not the mistake. The mistake is doing it by accident because nobody was watching the numbers before December 31st.
Full Episode Transcript
Adam: Good morning, and welcome to Retirement Tax Matters. I'm Adam Reed. This is Garrett Crawford, our resident CFP® professional. And this morning, normally I kind of open with, "Hey, here's what we're talking about, here's what we're doing," but Garrett, you wanted me to toss it up to you for the alley-oop this morning. What do you got for us?
Garrett: Yeah, let's do it. So happy Halloween! I think this is coming out just a couple of days early, but I've been writing about taxes, tax planning, financial planning, and retirement for a few years now. And I wanted to do the intro because I'm not going to say this is going to be our best episode we've ever done, but I've always had it in my back pocket that I wanted to do a Medicare IRMAA and Halloween episode. And so we're finally getting around to doing this.
Adam: Spooky time of year. The scariest topic in financial planning, IRMAA surcharges.
Garrett: My feeling is that IRMAA and Halloween just go together. The reason I say that is that I have been doing this for almost every week, 13 or 14 years now, and it's amazing. I'm not going to say that you all are out there scared of Medicare IRMAA charges, but boy, do we talk about it a lot. It's like, how do we avoid Medicare IRMAA? And it really is like, how do we avoid this big, scary thing that's out there? I'm not sure exactly what we're going to do for the thumbnail yet. Maybe we'll go a little crazy. This is a Halloween-themed episode kind of, but it's probably not going to be super Halloween-y. The idea here is that Medicare IRMAA is just one of the most talked-about conversations that I have in retirement planning with my clients. There's a lot of fear around it. There's a lot of feelings around whether it should be there or whether it shouldn't be there. And I just think, kind of like the Halloween season, you get trick-or-treaters coming to your door and they're wearing these costumes, but really it's a fun holiday. I think with Medicare IRMAA, there's a lot of fear out there. We're not trying to add to the fear. In fact, today's episode, I really want to empower you to not be so fearful of Medicare IRMAA and how to push through that. So I think that's a good topic for today, and I'm finally getting this bucket list episode out there.
Adam: He's ready for it. He's been chomping at the bit. What Garrett doesn't know is I do all the editing. Once we've got everything put together, I'm going to use AI to put him in a hot dog costume for the episode. So probably not, but I may try it. We'll see what happens. Today we're talking about IRMAA, and I think for everybody viewing this, just throwing this out there, if you're well-versed on IRMAA and you're like, "Oh yeah, I know what this is. I just want to get to the points of what I need to avoid and how I should reframe my thinking about it," skip through. There are some chapters down below in the description, or you can see them on the slide bar if you're on your computer or your phone. You can skip ahead, because we're going to start with just the basics. If you don't know what IRMAA is, or maybe you know what it is but you're unfamiliar with it, the rest of the episode is going to be like, "What are they talking about? Why are people even scared of this?" So Garrett, give us just a crash course. Give us the 101 on what we need to know about IRMAA.
Garrett: This is an interesting time of year when we're recording it. Today is October 22nd. It'll come out next week in October of 2026. Another one of my favorite things ever since I got in the industry is that October is the month when we start to learn what the Social Security cost of living adjustment is going to be for next year. Not too many people care about that except retirees and Garrett. But they also talk about Medicare IRMAA. And so this morning I thought it'd be helpful just to kind of brush up on the recently released numbers for Medicare IRMAA. As I was reading this morning, somebody that I've gone to in years past to give updated estimates for Medicare IRMAA, I learned there was a rule this year where the government was shut down last October 2025. So where these numbers would normally be finalized for IRMAA next year in 2027, they're still working on figuring out how to do that one month that they missed out on. But let's talk about the pain points here. Basically, the idea with Medicare IRMAA is that Medicare is government-subsidized health insurance for people once they turn age 65 or if they retire and start needing health insurance. I was refreshing this morning that for most people, they're covering about 25% of the Medicare health insurance costs, where the government steps in and covers the other 75%. So it's subsidized. But there is a consensus, both parties, whether you're Democrat or Republican, on the area of IRMAA. IRMAA is a program where people who have made more during their lifetimes end up paying more for Medicare. Instead of paying only 25%, the more money that you make, the higher your modified adjusted gross income, you pass these certain thresholds where your Medicare Part B and D premiums end up having what they call a Medicare IRMAA surcharge. Cue Halloween music. Boom, boom, boom. Let's just keep it real quick this morning. Based on your marital status, those cliff thresholds that we'll talk about a