Meet IRMAA: The Medicare Surcharge With a Two-Year Memory

IRMAA is the Income-Related Monthly Adjustment Amount, a surcharge that raises your Medicare premium based on income from two years ago. Here is how it works, and how a smart year can quietly trigger it. Part three of The Gap Years.

Read the full article: https://news.americanretirementadvisors.com/what-is-irmaa-medicare-surcharge/

American Retirement Advisors helps families in Arizona and Nevada navigate healthcare, retirement income, and inheritance planning. Want to reach out? Text us at (602) 281-3898, email support@americanretire.com, or visit https://americanretirementadvisors.com.

Transcript

SPEAKER_06 0:01

Welcome to the American Retirement Advisor, coming to you from One to Three Z Studios. Real stories, real strategies, and straight talk about healthcare, retirement income, and inheritance planning. I'm Ian Schaefer, joined with Eddie and Betty. Let's get into it.

SPEAKER_05 0:16

Welcome back to the American Retirement Advisor. I'm Betty, and Eddie is here with me in the studio today, as always. Eddie, I want to jump right in because we have something on the table today that I think is going to genuinely surprise a lot of our listeners. And I say that because it surprised me the first time I really understood it.

SPEAKER_01 0:37

Yeah, glad to be here. And I think you're right. This one has a way of catching people off guard, even when they thought they had their retirement income pretty well mapped out.

SPEAKER_05 0:45

So, for context, we've been working through a series. Ian Schaefer, our company's COO, has been writing what he's calling the gap years. And it's all about that window between when you retire and when required withdrawals kick in at 73, when your income is actually lower and there are real planning opportunities. We talked in the last episode about Roth conversions during that window, filling up your tax bracket on purpose. But Ian ended that piece with a warning. And today's article is all about that warning.

SPEAKER_01 1:17

Right. And the warning is that when you raise your income on purpose, even for a good reason, like a Roth conversion, it has ripple effects. And the one that hits people hardest, the one that Ian says surprises more retirees than almost anything else they see, is something called IRMA.

SPEAKER_05 1:34

IRMA. I love that it has a name. Walk me through what it actually stands for, because I know the acronym sounds a little intimidating.

SPEAKER_01 1:42

So IRMA stands for the Income Related Monthly Adjustment Amount, which is a very official, very unfriendly name for what is essentially an extra charge added to your Medicare premiums when your income goes above a certain level.

SPEAKER_05 1:57

So it's a surcharge on top of what you're already paying for Medicare.

SPEAKER_01 2:01

Exactly. Most people pay what's called the standard Part B premium, which in 2026 is $202.90 a month. But if your income is above certain thresholds, Irma kicks in and raises that premium in steps. The more income you have, the higher it goes.

SPEAKER_02 2:18

And Part B is the medical coverage side of Medicare, the doctor visits and outpatient stuff.

SPEAKER_01 2:24

That's right. And there's also a separate, smaller surcharge that gets added to your Part D premium, which is your drug coverage. So it touches both.

SPEAKER_05 2:33

Okay, so the concept is pretty clear. Your income goes up, your Medicare premiums go up.

SPEAKER_02 2:38

What I want to get into, though, is what Ian calls the two-year memory, because that's the part that really got me.

SPEAKER_01 2:44

This is the sneaky part. Irma does not look at what your income is right now, it looks back two years. So your 2026 Medicare premiums are actually based on the income that showed up on your 2024 tax return, the return you filed in 2025.

SPEAKER_02 3:00

So there's this delay, a two-year gap between when you make a financial decision and when you actually feel it in your Medicare bill.

SPEAKER_01 3:08

Which is exactly why it catches people. You make a move today, life goes on, and then two years later you open your Medicare statement and something is higher, and you are genuinely sitting there trying to figure out why.

SPEAKER_04 3:21

Ian has a great line in the article about this.

SPEAKER_05 3:23

One of the advisors at American Retirement Advisors has a phrase for it. I thought it was so vivid. Two years from the time you pull that money out, the Pied Piper comes to collect.

SPEAKER_01 3:35

I love that, because it captures the delay perfectly. You're not paying right away, you're paying later, after you may have completely moved on from whatever decision triggered it.

SPEAKER_05 3:45

And then there's the nickname. Some of the folks they work with apparently just call Irma Irma, as in, we don't like Irma, she's mean, so we try not to let her visit.

SPEAKER_01 3:55

Which I think is the most useful way to remember her. Irma. She shows up two years late, and you had no idea she was coming.

SPEAKER_05 4:03

Okay, so let's talk about the actual numbers because this is where it gets really concrete. Ian lays out the 2026 brackets in the article, and I want to go through them, because when you see the tiers, you really understand why this matters so much.

SPEAKER_01 4:18

So there are six tiers, and these are based on your modified adjusted gross income from 2024 applied to your 2026 premiums. At the bottom, if you're single with income up to $109,000 or married filing jointly up to $218,000, you pay the standard premium, $202.90 a month, no surcharge.

SPEAKER_04 4:41

Okay, and then it starts climbing.

SPEAKER_01 4:43

The next tier goes up to $137,000 for single filers, $274,000 for joint, and now Part B is $284.10 a month. Then up to $171 single, $342 joint, and you're at $405.80 a month.

SPEAKER_05 5:04

Those jumps are significant.

SPEAKER_01 5:05

They keep going, up to $205,000 single, $410,000 joint, and you're at $527.50 a month. Then under $500,000 single and under $750,000 joint, it's $649.20 a month. And at the very top, $500,000 and above for single filers, $750,000 and above for joint, the Part B premium is $689.90 a month.

SPEAKER_05 5:35

So from the standard premium all the way to the top, you're talking about going from roughly $200 a month to nearly $700 a month per person.

SPEAKER_01 5:45

Per person. And that's just Part B. Remember, there's also the Part D surcharge on top of that.

SPEAKER_05 5:51

Now I want to talk about something Ian emphasizes in the article, because I think this is the most important mechanical thing to understand. He says it's a cliff, not a ramp. What does that mean exactly?

SPEAKER_01 6:03

It means the tiers don't phase in gradually. You don't pay a little more as your income creeps up. You hit a threshold, even by a single dollar, and you jump to the entire next tier, the whole extra amount, for the whole year.

SPEAKER_05 6:18

Ian gives a really stark example of this in the article. Can you walk through that?

SPEAKER_01 6:22

Yeah, so imagine a married couple with income of $217,000. They're just under the first Irma threshold, which for joint filers is $218,000. They pay the standard premium, no surcharge. Now imagine the same couple has income of $219,000. They've crossed the line. By $2,000. By $2,000. And because they've crossed into the next tier, each of them now pays $81.20 more per month on Part B alone. That's for the whole year. For the couple together, that's nearly $2,000 a year in extra premiums, triggered by $2,000 of income landing on the wrong side of the line.

SPEAKER_05 7:08

So they essentially paid 100% tax on those $2,000 of extra income in the form of Medicare premiums.

SPEAKER_01 7:15

That's a really clean way to put it, and that's why Ian says the line matters so much more than the slope. It's not about how steep the increase is once you're over, it's about whether you're over at all.

SPEAKER_05 7:27

So now let's bring this back to the Roth conversion conversation, because that's how these two pieces of the series connect. If you're in those gap years, income is lower, and you're thinking about doing a Roth conversion to fill up your tax bracket, how does Irma factor in?

SPEAKER_01 7:42

So the Roth conversion is a smart strategy in those years. You're paying tax now at lower rates rather than later at potentially higher rates. But the conversion counts as income, and if that income pushes you over an IRMA threshold, two years from now your Medicare premiums go up.

SPEAKER_04 8:01

Which you might have completely forgotten about by then.

SPEAKER_01 8:04

Which is why Ian's point is so important here. He says this isn't a reason to skip the conversion, it's a reason to size it with the line in mind. Sometimes the right move is to convert up to the Irma threshold and stop. Sometimes the conversion is worth more than what the surcharge costs, and you go ahead and pay Irma a one-year visit on purpose.

SPEAKER_04 8:25

I love that. A one-year visit. You're not trying to avoid her forever necessarily. You're just deciding deliberately whether she's worth inviting in or not.

SPEAKER_01 8:34

Exactly. The whole point is that you make the decision with the full picture in front of you. You're not getting surprised two years later by a bill that feels like it came from nowhere. Ian specifically says this is the kind of trade-off worth modeling before you act. And I think that's the right frame.

SPEAKER_00 8:52

And modeling it means sitting down with someone who can actually run those numbers, because this is not back-of-the-envelope stuff.

SPEAKER_01 8:59

It really isn't. There are multiple variables of play at the same time. Your tax bracket, the Irma thresholds, any other income events you might have in that year, whether you also have a large capital gain coming, whether you're selling a property. All of that feeds into the same number that Irma is looking at two years later.

SPEAKER_05 9:19

Speaking of those other income events, Ian mentions in the article that it's not just Roth conversions that can push you over. It's any income event.

SPEAKER_01 9:28

Right. Irma is based on your modified adjusted gross income, your MAGI from two years prior. So a large capital gain, selling a piece of property, any of those can raise the number that Irma is measuring. It's not specific to Roth conversions, it's the whole income picture.

SPEAKER_05 9:47

Okay, so now I want to get to the part of the article that I think is genuinely underknown. The part where Ian says this is something worth telling a neighbor, because there's actually a way to fight back against Irma in certain situations.

SPEAKER_01 10:01

This is really valuable because remember the two-year look back can work against you in a particular way. If you were working in 2024 and you've since retired, your 2026 Medicare premium might be based on a paycheck that simply no longer exists. You're being charged based on income you don't have anymore. Which feels deeply unfair when you think about it. It does. And Social Security knows this is a real thing that happens. So there's a process. You can file something called Form SSA-44, and through that form you can report what's called a life-changing event and ask Social Security to use a more recent year's income instead of the two-year-old return.

SPEAKER_03 10:43

What qualifies as a life-changing event? Because that term sounds broad.

SPEAKER_01 10:49

Retiring counts, reducing your work hours counts, the death of a spouse, marriage, divorce, the loss of a pension. So if any of those things have happened and reduced your income, you have grounds to go back to Social Security and say, look, the number you're using to set my premium doesn't reflect my actual situation anymore. And if they agree with you, they lower the surcharge. They lower it. And Ian makes a point that really stuck with me. He says a lot of people simply pay the higher amount because this option was never explained to them. They get the bill, it's higher than they expected, and they just pay it because they don't know there's any recourse.

SPEAKER_03 11:26

That's such a shame. Because it's not a loophole or anything tricky. It's a form you're entitled to file.

SPEAKER_01 11:32

It's a legitimate appeal process that exists precisely because the look back creates situations that aren't fair. And if you have grounds, you should absolutely use it.

SPEAKER_05 11:42

Now, I want to ask you something because I think our listeners are going to wonder about this. If someone gets an IRMA determination they disagree with for reasons other than a life-changing event, can they still push back?

SPEAKER_01 11:53

Ian does note that you also have the right to appeal if you disagree with their determination more generally. The specifics of exactly how that process works, what the timelines are, what documentation you'd need beyond what Ian covers in the article. Honestly, those details are a question for one of the advisors at American Retirement Advisors. That's exactly the kind of procedural thing where you want to talk to someone who handles it regularly rather than rely on a general description.

SPEAKER_04 12:20

That's fair.

SPEAKER_05 12:21

And honestly, that applies to a lot of what we're talking about today. The concept is something everyone should understand. But the execution, the actual planning, that's where you need a real conversation with someone who knows your specific numbers.

SPEAKER_01 12:35

Completely. Understanding what Irma is and how it works is table stakes. But figuring out exactly where your income is going to land relative to those thresholds in any given year and whether a conversion makes sense given the full picture, that's planning work.

SPEAKER_05 12:49

Let me ask you something that I think gets at the emotional side of this. Because I think some people hear all of this and their instinct is just, okay, I'll keep my income low so Irma never visits. And I want to push back on that a little.

SPEAKER_01 13:04

Yeah, that's a real reaction, and it's worth addressing. Ian is pretty clear on this point. Irma is not a reason to fear higher income, and it's certainly not a reason to stay poor on paper, as he puts it. She's just one more line to plan around. One more line to plan around. I like that framing. Because the alternative, letting Irma fear drive your decisions, could mean leaving real money on the table. If a Roth conversion would save you significantly more in future taxes than it costs in a year of higher Medicare premiums, it's probably still the right move. You just want to go in with your eyes open.

SPEAKER_05 13:41

And that's the theme that runs through all of Ian's Gap Year series, really. The gap years are full of opportunities, but the opportunities have side effects, and the side effects have two-year delays, and so you need someone helping you see around those corners.

SPEAKER_01 13:56

That's exactly it. The Roth conversion opportunity is real. The Irma consideration is real. The interaction between them is what requires careful attention. And when you add in things like capital gains or property sales happening in the same year, the picture gets complex fast.

SPEAKER_05 14:14

I want to just do a quick recap of the key mechanics before we wrap up, because there's a lot here, and I want to make sure it's sticky. So, Irma is an extra charge on your Medicare Part B and Part D premiums when your income goes above certain thresholds.

SPEAKER_01 14:31

Right. The standard Part B premium in 2026 is $202.90 a month. IRA can push that up to as high as $689.90 a month at the highest income level in tiers.

SPEAKER_05 14:45

And the income they're measuring is your MAGI from two years prior. So 2026 premiums are set by 2024 income.

SPEAKER_01 14:54

The two-year delay, the Pied Piper.

SPEAKER_05 14:58

It's a cliff structure, not a gradual ramp. Cross a threshold by even a dollar, and you're in the next tier for the whole year.

SPEAKER_01 15:06

Which is why planning to a specific threshold matters so much more than just generally keeping income low.

SPEAKER_05 15:13

If you've had a life-changing event that reduced your income, you can file form SSA 44 to ask Social Security to use a more recent year instead of the two-year-old return.

SPEAKER_01 15:24

And a lot of people don't know that option exists, so they just pay more than they have to.

SPEAKER_05 15:29

I want to ask one more thing before we close, because Ian ends the article on a note that I think is really worth highlighting. He says, this is exactly the kind of thing worth modeling before you act. And I think there's a version of a listener out there right now who is either already in their gap years or just about to enter them, and they're trying to figure out whether to do a Roth conversion, and they don't know how Irma fits into that picture.

SPEAKER_01 15:55

And the honest answer is that you cannot really figure that out in isolation. You need to know where your income is currently projected to land, where the IRMA thresholds are, how much conversion headroom you have before you cross a line, and then weigh that against the tax benefit of converting. Those four things have to be looked at together.

SPEAKER_05 16:15

And depending on your specific situation, the right answer could be convert all the way up to the threshold, or it could be convert a little past it because the benefit outweighs the cost, or it could be this is actually not the year because you've got something else happening that's already pushing your income up. There's no universal answer.

SPEAKER_01 16:35

Which is exactly why Ian wraps the article the way he does. He says if you want help mapping your own income against these thresholds before you make a move, reach out to the team at American Retirement Advisors. The number is 602-281-3898. That's what they're there for.

SPEAKER_05 16:52

And I'll just add to that because I think sometimes people feel like they need to have everything figured out before they pick up the phone. You don't. You can call with exactly the confusion you have right now. You can say, I'm thinking about a Roth conversion, I've heard about Irma, I don't know how these things fit together. Help me understand my situation. That's the conversation.

SPEAKER_01 17:14

That's the right starting point. You don't need to arrive with the answers, you need to arrive with the questions.

SPEAKER_05 17:20

I also just want to say there's something about today's episode that feels important beyond the mechanics. Because what Ian is really describing is a system that was designed in a way that catches people off guard. The two-year delay, the cliff structure rather than the ramp, the appeal process that most people never hear about, none of that is intuitive. You can be a smart, careful person and still get blindsided by Irma simply because nobody explained the rules.

SPEAKER_01 17:51

That's the purpose of this series. And honestly, it's the purpose of this show. These are not obscure edge cases. This is what retirement actually looks like when you get into the details. The gap years are full of real decisions with real consequences that are just not well understood by most people going through them.

SPEAKER_05 18:10

And we're not done with the series. Ian's got more coming. The next piece in the gap years is about Social Security taxes. Specifically, what happens when more of your social security benefit becomes taxable than you ever expected. So if today's episode opened your eyes a little, I think the next one is going to do the same thing.

SPEAKER_01 18:28

It's a connected set of surprises, and the more you understand how they interact, the better positioned you are to actually take advantage of the gap years rather than just stumble through them.

SPEAKER_05 18:39

Before I let you go, one practical thing I want listeners to do. If you are currently on Medicare, pull up your premium notice and look at what you're paying. If it's higher than that standard 202.90 figure, you're already in Irma territory. And if you don't know why, or if your income has changed significantly since the year those premiums are based on, that is worth a conversation. That is worth a phone call.

SPEAKER_01 19:03

And if you're not yet on Medicare, but you're within a few years of it, this is exactly the time to be thinking about it. Because the decisions you make now are the ones that will set your premiums two years down the road. The runway is now.

SPEAKER_05 19:17

The runway is now. I love that. Okay, thank you so much for walking through all of this today. Ian Schaefer's piece is the third in the gap year series, and it's worth reading alongside this conversation because he's got the full tier breakdown right there in front of you, and it really helps to see the numbers laid out.

SPEAKER_01 19:35

Agreed. And if anything we talked about today prompted a question about your own situation, don't sit on it. Call the team. The number is 602-281-3898. They're good at this.

SPEAKER_05 19:48

To everyone listening, thank you for spending part of your day with us. Retirement is a long chapter, and you deserve to go into it with a clear picture of what's coming. That's what we're here for. We'll see you next time.

SPEAKER_01 20:01

A quick note before we wrap up. Today's episode covers financial topics for educational purposes only. American Retirement Advisors does not provide tax or legal advice. Please consult a CPA or tax professional before making any decisions based on what you heard today.

SPEAKER_05 20:19

This is Betty with the American Retirement Advisor. Thanks for listening. If this episode helped you think differently about your retirement, share it with someone who needs to hear it. You can read the full article and browse hundreds more at AmericanRetire.com. Want to reach out? You can text us at 602-281-3898. Or email support at AmericanRetire.com. Be sure to subscribe so you never miss an episode. We publish daily. See you next time.

SPEAKER_06 20:53

Thanks, Eddie. Thanks, Betty. Until next time, this is Ian Schaefer coming to you from 123 Easy Studios. I hope you've enjoyed this recording of the American Retirement Advisor, where we make healthcare, income, and inherit 23 Easy.