The years leading up to Medicare eligibility are among the most expensive for health coverage. While employer-provided insurance may be subsidized by your company, individual plans on the open market can cost well over $1,000 per month for someone in their early 60s.[1] In contrast, the standard premium for Medicare Part B (medical coverage) and Part D (drug coverage) combined is around $250 per month.[2] Even including an additional Medigap plan, the cost of Medicare coverage for a 65-year-old can be significantly lower than the cost of private insurance for a 64-year-old.
Most people understand that Medicare premiums will increase over time with inflation. What’s less well-known is that premiums can also change year-to-year depending on your income, due to a provision called the Income-Related Monthly Adjustment Amount (IRMAA). While IRMAA is intended as a cost-sharing measure for higher-income participants, it can be an unwelcome surprise for someone who had an unusually high-income year because, for instance, they sold their home.
Understanding IRMAA
IRMAA is a surcharge added to your Medicare Part B and Part D premiums if your income exceeds certain thresholds. Income is broadly defined, and includes wages, investment income, Social Security benefits, IRA distributions, pensions, and even tax-exempt municipal bond interest. The surcharge increases with income, up to a maximum of $578 per person per month.
There are several tiers of IRMAA. Currently, the first tier starts at $109,000 for individuals and $218,000 for married couples. IRMAA tiers have a “cliff” structure, meaning that even a single dollar over the threshold triggers the full surcharge for that tier. Because each cutoff is so abrupt, planning around IRMAA generally involves carefully managing these tiers.
Finally, IRMAA is based on your income from two years prior. For example, your 2026 premiums are based on your 2024 tax return. It’s worth emphasizing that IRMAA is recalculated annually; it’s not a permanent adjustment to your premiums.
How to Manage IRMAA
The annual reassessment allows for multi-year planning that can reduce the lifetime impact of IRMAA’s surcharge. These are some of the ways it can be managed year-to-year:
- Qualified charitable distributions (QCDs): If you’re over 70½ and charitably inclined, QCDs are one of the most effective ways to reduce income. QCDs allow you to make charitable gifts directly from your IRA, they count towards your required minimum distribution, and unlike regular IRA withdrawals, they are not counted as income. This can drop you into a lower IRMAA tier.
- Strategic timing of income: Shifting income from higher- to lower-income years can reduce your IRMAA surcharges over time. For example, delaying Social Security benefits can create an opportunity for larger IRA distributions, reducing future income and, potentially, IRMAA. The goal is to manage income each year to keep you below a threshold.
- Life-changing event: Under certain circumstances, you may be able to request a reduction in your IRMAA based on your current income rather than what you earned two years ago. “Life-changing events” are narrowly defined, including retirement, marriage or divorce, and loss of a spouse. They generally involve a permanent reduction in income; a one-time jump in income, such as from the sale of a property, typically would not qualify.
When IRMAA Makes Sense
Sometimes IRMAA is unavoidable. Other times, it’s simply an incidental cost of a decision. Rarely is it the sole factor behind a choice. Diversifying out of concentrated stock, selling a business, or even paying for a remodel from your investments can create significant income in a single year. Even if that pushes you into a higher IRMAA tier later, the financial or personal value gained can easily outweigh the temporary increase in Medicare premiums.
For instance, consider a couple in their 70s who own a second property that needs repairs and is rented to difficult tenants. Although the rental has been a good investment, they are ready to start simplifying their lives and decide to sell it. In addition to the tax cost, the $200k capital gain from the sale will move them into a higher IRMAA tier, raising their joint Medicare premiums by about $7k for one year. They decide this is worth it to remove what has become an increasing source of stress for them.
Invest In Living
In the realm of personal finance, IRMAA sits in an unusual place. It is quite visible, since Medicare premiums are generally deducted directly from your Social Security benefits. It’s also quite delayed. Imagine getting a bill today for a vacation you took (and thought you paid for) two years ago! When it’s unexpected, IRMAA can be a very unwelcome surprise. At North Berkeley, we regularly work with clients to integrate these kinds of considerations into broader financial decision-making. Unwanted costs such as IRMAA are a part of life, and while they’re important to understand, minimizing them is not always the best choice. Investing in living is about making financial choices that are both deliberate and fulfilling, and that align with how you want to live your life. Having a trusted advisor can help you make these choices calmly and confidently.
Resources
[1] Based on Covered California’s “Shop and Compare” tool, assuming a 64-year old with household income of $100,000 who has “medium” use needs, as defined by Covered California. https://apply.coveredca.com/lw-shopandcompare/. Accessed 5/13/26.
[2] https://www.upmchealthplan.com/medicare/learn/basics/medicare-part-d/medicare-part-d-costs
