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How can retirement income affect Medicare premiums?

Some Medicare beneficiaries pay an income-related surcharge in addition to their regular Part B and Part D costs. This surcharge is called IRMAA. Because Medicare generally looks back two tax years, a Roth conversion, IRA withdrawal, or other income event today can affect premiums later.

Reviewed August 2, 2026 · Educational information, not individualized tax or Medicare advice

What is IRMAA?

IRMAA stands for Income-Related Monthly Adjustment Amount. It is an additional amount paid with Medicare Part B and, when applicable, Medicare prescription drug coverage. The amount depends on filing status and modified adjusted gross income, with higher income ranges producing higher adjustments.

IRMAA is not a permanent enrollment penalty and it is not calculated from net worth. It is an annual income-based determination. Thresholds, premiums, and adjustment amounts change over time, so a planning model should use year-specific data rather than one permanent table.

Income year Retirement income is realized

IRA withdrawals, Roth conversions, gains, interest, and other income contribute to the tax return.

Tax return MAGI is reported

SSA generally receives the completed federal tax-return information from the IRS.

Premium year Usually two years later

The income range can determine whether an additional Part B or Part D amount applies.

What income does Medicare use?

For IRMAA, SSA generally defines MAGI as adjusted gross income from the federal tax return plus tax-exempt interest. AGI is currently found on Form 1040, line 11, but form lines can change. Tax-exempt municipal-bond interest can therefore matter for IRMAA even when it is not included in federal taxable income.

“MAGI” does not have one universal calculation for every federal program. Use the Medicare/IRMAA definition rather than a MAGI worksheet intended for an IRA deduction, tax credit, or health-insurance subsidy.

Retirement decisions that can raise MAGI

  • Taxable Traditional IRA, 401(k), pension, or annuity distributions.
  • Roth conversions from untaxed retirement accounts.
  • Required minimum distributions.
  • Realized capital gains, taxable interest, and dividends.
  • Taxable portions of Social Security benefits.
  • Business, rental, or other taxable income.
  • Tax-exempt interest that must be added for the IRMAA calculation.

Qualified Roth IRA withdrawals generally do not increase AGI, which can provide flexibility later. That does not make every conversion worthwhile: the conversion itself generally creates income in its own year.

Roth conversions and the two-year lookback

A conversion can reduce future Traditional IRA balances and RMDs while increasing MAGI in the conversion year. Near Medicare eligibility, that increase may affect Part B and Part D costs two years later. A useful conversion comparison therefore includes both the immediate income tax and the later IRMAA effect.

The best answer is not necessarily the schedule with no IRMAA increase. A conversion that produces a modest temporary surcharge could still improve a higher-priority outcome, while a large surcharge could erase part of the expected tax benefit. This is why the planner offers an IRMAA guardrail instead of assuming one rule fits every household.

How the planner models Medicare and IRMAA

The default Simple Deterministic Medicare model assumes healthcare spending is already included in Annual Spending and does not require detailed Medicare inputs. The optional custom model can add standard Part B, Part D or other premiums, out-of-pocket healthcare, and calculated IRMAA when those costs are not already included.

Calculated IRMAA uses modeled MAGI and a two-year lookback. Exact configured tables are used when available; future thresholds and premiums can be inflation-adjusted from prior configuration data and identified as estimates. Initial prior-year MAGI inputs help model premium years whose lookback occurs before the projection begins.

A practical IRMAA planning workflow

  1. Decide whether healthcare costs are already included in annual spending to avoid counting them twice.
  2. Enter prior-year IRMAA MAGI only when using calculated IRMAA and the lookback precedes the projection.
  3. Compare No Roth, Fixed, and optimized schedules at the same Social Security claim age.
  4. Review conversion-year MAGI and the Medicare costs appearing two years later.
  5. Compare total taxes, incremental IRMAA, spending coverage, and after-tax balances together.
  6. Check the applicable year's official threshold and premium table before taking action.
  7. Ask a qualified tax professional to confirm the actual MAGI calculation and transaction timing.

When income has fallen

SSA allows some beneficiaries to request a new IRMAA determination after specified life-changing events, such as loss of income, marriage, divorce, or death of a spouse. An amended return can also require updated information. Eligibility and documentation should be confirmed directly with SSA; the planner does not predict appeals or adjustments.

Official and related resources

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