There's a stealth tax for those over 65 you may be familiar with, and that's very difficult to minimize. It can't be offset by credits or deductions, and it's even levied on tax-exempt income from municipal bonds. We're talking about Medicare's Income-Related Monthly Adjustment Amount, or IRMAA. Those who've experienced it are probably groaning already. Here's our take.
First, this isn't exactly a tax. It's a higher premium levied on Medicare beneficiaries with higher income. Income cutoffs are indexed to inflation, and are released each November. Adjustments are made the following January using the most up-to-date tax filing available. In January 2025, that is the 2023 return, since none of us has filed for 2024 yet. IRMAA is calculated using modified adjusted gross income, or MAGI, which is essentially your adjusted gross income plus tax-exempt interest income. Adjustment amounts for 2025 can be found here, and remember, they're based off information from 2023. What's particularly bothersome about IRMAA is the cutoffs are hard-and-fast. If an individual's MAGI is $106,000, he or she will pay $2,220 for Medicare coverage each year. If it's only one dollar higher, that premium will jump to $3,108, and if it's over $133,000, the premium will be $4,440 -- twice what someone with income $27,001 lower pays.
Since IRMAA is nearly impossible to reduce, our advice is to not maximize it. If you get to December 15, 2025 and need an extra $5,000, take a peek at the newest IRMAA tables. If your income so far in 2025 is $160,000, you can safely take an IRA distribution for that amount if you so choose. If your income so far is $165,000, be cautious. A $5,000 IRA distribution could push you into the next bracket, so consider withdrawing from a taxable account, Roth IRA, or even more extreme measures like carrying a credit card balance. (A $5,000 balance for one month at 30% annual interest would cost $125, compared with higher IRMAA totaling $1,331.) Remember that the brackets you see will be adjusted for inflation once or twice before they apply to you, and we can help you estimate your year-to-date income if needed.
There is a process to file an appeal if you believe your IRMAA is inaccurate. In addition to correcting clerical errors, there are seven life-changing events listed here that may qualify you for an adjustment. Take note of what's missing: There are no exceptions for large one-time gains such as the sale of a home or business, or large investment gains.
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