Mistake #5: Overlooking How Income Affects Medicare Premiums
Direct Answer:
Your income determines how much you pay for Medicare Part B and D. Higher income can trigger IRMAA surcharges—steep premium increases that surprise many retirees who don’t plan their withdrawals and conversions carefully.
Q: Why does my retirement income affect my Medicare premiums?
A: Medicare uses your income to determine how much you’ll pay in monthly premiums. If your modified adjusted gross income (MAGI) exceeds certain thresholds, you’ll owe an additional surcharge known as IRMAA.
What Is IRMAA and How Does It Work?
- IRMAA stands for Income-Related Monthly Adjustment Amount
- It applies to Medicare Part B and Part D premiums
- Based on your MAGI from two years prior
- The higher your income, the more you’ll pay—up to several hundred dollars extra per month
Common Ways Retirees Trigger IRMAA by Accident
- Taking large IRA withdrawals in a single year
- Not planning Roth conversions during lower-income years
- Selling appreciated investments without managing capital gains
- Starting Social Security and IRA distributions at the same time without coordinating income
Real Example – A Couple Caught Off Guard
A Portland couple planned to take a one-time $50,000 withdrawal from their IRA to renovate their home. That withdrawal:
- Pushed their MAGI above the IRMAA threshold
- Increased both of their Medicare premiums by over $1,900 each
- Affected them for a full year—even though the renovation was a one-time event
We helped restructure their future withdrawals to keep them below key income levels and avoid future surprises.
How to Plan Around Medicare Premiums
1. Know the IRMAA Thresholds
- In 2025, they start at ~$103,000 (single) and ~$206,000 (joint)
- Even $1 over can trigger a surcharge
2. Coordinate Withdrawals and Conversions
- Spread Roth conversions over multiple years
- Time large withdrawals carefully
3. Use Account Mix Strategically
- Pull from Roth IRAs or principal in taxable accounts to avoid inflating income
- Minimize RMDs with pre-retirement conversions
Conclusion: Your Income Style Should Match Your Medicare Strategy
Retirement income decisions aren’t just about taxes—they also affect healthcare costs.
As a Portland-based retirement income advisor, I help clients coordinate income, withdrawals, and taxes to avoid hidden costs like IRMAA. Your complimentary RISA can help uncover your ideal approach to managing retirement income confidently.
FAQs
Q: What is IRMAA, and when does it apply?
A: IRMAA is an income-based surcharge on Medicare Part B and D premiums. It applies when your MAGI exceeds set thresholds—usually based on your income from two years ago.
Q: How can I reduce my Medicare premiums in retirement?
A: By managing your taxable income—especially withdrawals and capital gains—you can stay below IRMAA thresholds and keep premiums lower.
Q: Can I appeal an IRMAA charge?
A: Yes, in certain life events like retirement or the death of a spouse. But proactive planning is still your best defense.