Understanding Medicare Surcharges and the Critical 2-Year Lookback Period
Medicare surcharges, known as Income-related monthly adjustment amounts (IRMAA), are extra fees added to Part B and Part D premiums for individuals with high modified adjusted gross income (MAGI). Liability for the IRMAA is based on your MAGI from your tax return two years prior to the current year – your 2026 premium is based on your 2024 tax return.
In 2026, the Part B surcharges will cost you anywhere between $81.20 to $487 monthly. Part D surcharges will range between $14.50 to $91 every month. THIS IS IN ADDITION TO THE BASIC PREMIUMS – Part B $202.90 and Part D $46.50 (average).
Most income sources will push beneficiaries into higher income brackets but there are strategies to control MAGI and protect your retirement budget. This is a crucial area of retirement planning. In 2026, the maximum IRMAA surcharge can increase your Medicare premiums by $578 monthly. For couples, up to $1156 monthly. To avoid, or minimize this stealth tax, it’s important to minimize taxable income in the Medicare look-back years, ages 63 and 64.
Here are a few planning strategies to mitigate IRMAA:
1. Maximize tax-free income sources
2. Avoid large capital gain events in the look-back years (ex. sale of a home)
3. Convert a portion of your traditional IRA/401k to a Roth IRA
4. Balance withdrawals from various accounts for tax-efficiency
5. Utilize qualified charitable distributions (QCD) (excluded from MAGI and IRMAA)
6. Manage investment income & capital gains utilizing strategic asset location, zero tax budgeting and tax-loss harvesting
7. File an appeal – If your income drops suddenly due to a “life-changing event”, you don’t have to wait two years to file an appeal.
For most retirees, the monthly Medicare premium is a fixed cost, but for a growing number of successful retirees, IRMAA can dramatically increase that bill. It’s an important reminder to understand IRMAA is triggered not just by earnings from work, but by a specific measure of income including traditional retirement account withdrawals to municipal bond interest. The core strategy for avoiding or reducing IRMAA is strategic retirement planning.
If you have questions, feel free to call my office at 773-467-0000.
Disclosure: This document is for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Farther Financial Advisors, LLC or any of its subsidiaries, or related entities to participate in any of the transactions mentioned herein. Before investing, consider your investment objectives, as well as Farther Finance Advisors, LLC’s fees and expenses. Farther Finance Advisors, LLC does not provide tax or legal advice; please consult your tax and legal professionals for guidance on these matters.
