Avoid These 7 Scenarios to Keep Your Medicare Premiums Lower In Retirement, #313

Medicare brings peace of mind to millions of retirees, but for those with higher incomes, there’s an added layer of complexity called IRMAA—the Income Related Monthly Adjustment Amount. If your modified adjusted gross income (MAGI) crosses certain thresholds, you may end up paying substantially more for your Medicare Part B and Part D coverage. In this article, we break down how IRMAA works, outline common scenarios that may unexpectedly raise your premiums, and offer actionable strategies to help you avoid unnecessary costs during your retirement years.

 

You will want to hear this episode if you are interested in...

• [02:14] How IRMAA works
• [04:09] IRMAA income brackets and premium increases 
• [05:43] General strategies and limitations for avoiding IRMAA
• [09:49] Managing Capital Gains and Medicare costs
• [10:41] Understanding the possibility of unexpected large gains pushing income higher 
• [12:37] Impact of spouse passing on taxes
• [14:54] Avoiding IRMAA surcharge

 

What Is IRMAA, and How Does It Work?

IRMAA adds a surcharge to your standard Medicare Part B and Part D premiums if your income exceeds specific limits. The calculation uses your Modified Adjusted Gross Income (MAGI) from your federal tax return for the prior two years. For example, your 2026 Medicare premium is determined by your 2024 tax return figures. This “two-year lag” means financial decisions made today could impact your healthcare costs down the line.

In 2024, the standard Part B premium is $202.90 per month. However, single filers reporting over $109,000 or married couples filing jointly above $218,000 pay $284 each per month, per person. Surpassing $137,000 (single) or $274,000 (joint) pushes your premium to $405.90—more than double the baseline. Part D premiums are also subject to surcharges, ranging from $14.50 to $91 per month at the highest income levels.

 

Seven Scenarios That Can Trigger IRMAA—and How to Prepare

While some situations are unpreventable, being aware of these common scenarios can help you make informed choices and potentially minimize your IRMAA exposure.

 

1. Municipal Bond Income: Not as Tax-Free as You Think

Many investors favor municipal bonds for their federal tax-exempt status. Unfortunately, while this income is absent from your regular AGI, it is added back into your MAGI when calculating IRMAA. If you're relying heavily on munis in retirement, this could unexpectedly inflate your Medicare premiums. Consider alternative investments or relocating those assets into accounts or vehicles where this income is shielded, like certain annuities, after consulting with a qualified financial advisor.

 

2. Capital Gains on Your Home Sale

When selling your primary residence, you can exclude up to $250,000 of gain if single or $500,000 if married, provided you meet the two-out-of-five-years residency rule. Gains above these thresholds are taxable and count toward your MAGI. Good record-keeping for home improvements can help increase your cost basis and reduce the taxable gain, but there aren’t many strategies to avoid this spike if a large gain is unavoidable.

 

3. Profits from Investment Property Sales

Selling an investment property can generate significant capital gains. But unique to investment real estate, the IRS allows you to defer these gains through a 1031 exchange—selling one investment property and reinvesting the proceeds into another. This move postpones the tax hit and the associated IRMAA impact, possibly indefinitely if you use the stepped-up basis at death.

 

4. Surprise Mutual Fund Capital Gains

If you own mutual funds outside retirement accounts, unexpected capital gains distributions from within the fund (for example, after large stock sales like Apple) could spike your MAGI. To mitigate this, consider shifting from mutual funds to individual stocks, bonds, or exchange-traded funds (ETFs), which typically generate fewer surprise capital gains.

 

5. Roth Conversions are Great for Taxes, But Be Careful

While Roth conversions can be powerful tax strategies, converting a sizable sum from a pretax IRA to a Roth IRA counts as income for IRMAA purposes. Carefully plan the size and timing of conversions to avoid pushing yourself into a higher premium bracket without realizing it.

 

6. The Financial Impact of Losing a Spouse

Widowhood or widowerhood can be doubly difficult; not only do you suffer personal loss, but your filing status shifts to single, drastically lowering the income thresholds for IRMAA. If you expect changes in income or status, make proactive plans with your advisor to help smooth your MAGI.

 

7. Large, One-Time Retirement Account Withdrawals

Big withdrawals from IRAs or 401(k)s—perhaps to buy a car or fund a vacation home—could catapult your income into a higher IRMAA tier. Consider spreading large purchases over several years or evaluating alternative financing options to keep retirement account withdrawals more manageable.

 

Small Decisions Add Up

While IRMAA might not be avoidable for everyone, being strategic about income sources, withdrawals, and investment choices can reduce surprises and keep more of your retirement income where it belongs—with you. Always consult with a financial advisor familiar with your unique situation before making significant financial moves. Keep your knowledge current and your planning proactive to support a more cost-effective retirement.

 

Resources Mentioned

 

• Retirement Readiness Review
• Subscribe to the Retire with Ryan YouTube Channel
• Download my entire book for FREE 
• 2026 Medicare Part B Premium Surprises, #282
• 7 Ways to Lower Your Income and Avoid the IRMAA Medicare Surcharge, #142
• Mistakes To Avoid During Medicare Open Enrollment with Danielle Roberts, #229   

 

Connect With Morrissey Wealth Management 

www.MorrisseyWealthManagement.com/contact

 

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