When you reach retirement, Medicare becomes one of the most important parts of your financial picture. While most people expect to pay their standard Medicare Part B and Part D premiums, many are caught off guard by something called IRMAA—Income-Related Monthly Adjustment Amount.
In plain terms, IRMAA is an extra surcharge added to your Medicare premiums if your income crosses certain thresholds. The calculation is based on your modified adjusted gross income (MAGI) as reported to the IRS, usually from your tax return two years prior.
Here's the challenge: not all income is treated the same way when it comes to IRMAA. A dollar from a Roth withdrawal is not counted the same as a dollar from a pension or IRA. Some income sources can bump you into a higher bracket, while others have no impact at all. For retirees on a fixed income, this difference can mean paying hundreds—or even thousands—more per year for healthcare.
That's why understanding what does and doesn't count toward IRMAA is so important.
What Income COUNTS Toward IRMAA
If you're receiving income from these sources, it will be included in your MAGI calculation and could potentially increase your Medicare premiums:
Wages and salaries – If you're still working part-time or consulting in retirement, this income counts.
Traditional IRA and 401(k) withdrawals – Every dollar you withdraw from pre-tax retirement accounts is added to your taxable income and counts toward IRMAA.
Pension income – Whether from a private employer or government plan, pension payments are fully taxable and included in MAGI.
Capital gains – Profits from selling stocks, mutual funds, real estate, or other investments will increase your income for the year and may trigger IRMAA.
Taxable portion of Social Security benefits – Depending on your overall income, up to 85% of your Social Security may be taxable and count toward IRMAA thresholds.
Roth conversions – While Roth IRA withdrawals themselves don't count (more on that below), converting traditional IRA funds to a Roth generates taxable income in the year of conversion.
Unemployment compensation – If you're between jobs before Medicare starts, this income counts.
Lottery or gambling winnings – Jackpot or not, these are taxable and included in MAGI.
Tax-exempt interest – Income from municipal bonds and similar investments is typically tax-free at the federal level, but it still counts when calculating IRMAA.
One-time severance or bonus payments – Large lump-sum payments in a single year can unexpectedly push you into a higher IRMAA bracket.
What Income Does NOT Count Toward IRMAA
The good news is that several common sources of retirement income are excluded from the IRMAA calculation:
ACA premium tax subsidies – If you're receiving healthcare subsidies before age 65, these don't count.
Roth IRA qualified withdrawals – Once you meet the age and holding period requirements, Roth distributions are tax-free and have no impact on IRMAA.
Life insurance death benefits – Proceeds paid to beneficiaries are generally not taxable income.
Inheritance – The amount you receive as an inheritance doesn't count toward IRMAA, though any income you later earn from inherited assets (like interest or dividends) may count.
Non-taxable portion of Social Security – Only the taxable portion affects IRMAA; the rest is excluded.
Gifts received – Money given to you as a gift is not considered income.
Worker's compensation benefits – These payments are not included in MAGI.
Veterans' disability benefits – Tax-free benefits from the VA don't count toward IRMAA.
Supplemental Security Income (SSI) – This needs-based program is not counted.
FEMA disaster relief grants and insurance reimbursements – Emergency assistance and insurance payouts for losses are excluded.
Why This Matters for Your Retirement Strategy
Understanding the distinction between income that counts and income that doesn't may provide planning opportunities. For example, funding your retirement spending with Roth withdrawals instead of traditional IRA distributions might help you stay below IRMAA thresholds. Similarly, being strategic about when you sell investments or convert retirement accounts could potentially help you manage Medicare premium costs.
It's also worth noting that IRMAA uses a two-year lookback period. That means your 2025 Medicare premiums are based on your 2023 tax return. This lag can work in your favor if you retire mid-career and your income drops—but it can also catch you off guard if you had a high-income year due to a one-time event like a home sale or bonus.
The Bottom Line
IRMAA is not something you can ignore if you want to keep your Medicare costs predictable in retirement. The difference between income sources that count and those that don't can have a real impact on your monthly budget. By understanding how IRMAA works and considering your withdrawal strategy, you may be able to better manage your healthcare costs in retirement.
If you're approaching Medicare eligibility or already enrolled, it may be worth reviewing your income sources with a financial professional who understands IRMAA planning. Strategic decisions about income timing and sourcing are important considerations for managing Medicare premiums.
Speak With a Licensed Agent
Navigating the choices during Annual Enrollment Period can feel overwhelming. Our licensed Medicare agent, Danielle McKenna, may be able to help you understand your options, review your current coverage, and discuss your Medicare benefits.
Consider scheduling early! Contact Danielle to schedule your appointment and get a head start on reviewing your Medicare coverage for 2025. Early planning may help you feel more prepared to review everything your plan may offer. Open Enrollment is October 15 - December 7, 2025.
Danielle McKenna
Financial Paraplanner Qualified Professional
CA License #0D97816 ~ NV License #3654433
To schedule your appointment:
- Phone: 530-672-1703
- Email:info@cfgstrategies.com (or contact any staff member)
Taking a proactive approach may help you feel more informed and prepared when Annual Enrollment Period starts.
Disclosure: This content was generated utilizing the help of AI research and is intended for informational purposes only. Please consult a qualified professional for personalized advice. For specific tax planning or estate planning advice, please consult a qualified tax advisor/CPA or estate planning attorney. This information is educational in nature and should not be considered tax, legal, or financial advice. Individual circumstances vary, and you should consult with qualified professionals regarding your specific situation.
Sources: Centers for Medicare & Medicaid Services. "2025 Medicare Parts B Premiums and Deductibles." CMS Newsroom, 2024, www.cms.gov/newsroom/fact-sheets/2025-medicare-parts-b-premiums-and-deductibles.
Centers for Medicare & Medicaid Services. "Medicare Costs." Medicare.gov, 2024, www.medicare.gov/publications/11579-medicare-costs.pdf.
Social Security Administration. "Income Related Monthly Adjustment Amount – IRMAA." SSA Forms, www.ssa.gov/forms/ssa-44.pdf.
Social Security Administration. "Medicare Premiums: Rules for Higher-Income Beneficiaries." Social Security, www.ssa.gov/benefits/medicare/medicare-premiums.html.
Social Security Administration. "Modified Adjusted Gross Income (MAGI) for IRMAA." Program Operations Manual System, secure.ssa.gov/poms.nsf/lnx/0601101010.
Social Security Administration. "IRMAA Sliding Scale Tables." Program Operations Manual System, secure.ssa.gov/poms.nsf/lnx/0601101020.