Most people building a retirement budget know to include Medicare as a line item. What they don’t know — until the bill arrives — is that Medicare Part B doesn’t charge everyone the same amount. If your retirement income crosses certain thresholds, you pay a surcharge on top of the standard premium called IRMAA. And here’s the trap: Medicare doesn’t look at what you earn the year you turn 65. It looks at what you earned two years earlier.
I spent 30 years as a Warning Coordination Meteorologist at the National Weather Service. The whole job was identifying hazards people didn’t see coming. IRMAA is exactly that kind of hazard — invisible until you’re already in it, and expensive once it hits. The families I talk to who got blindsided by it almost universally made the same mistake: they assumed their Medicare premium was the standard rate and never checked whether their income history pushed them into a surcharge tier.
What Medicare Part B Actually Costs — The Standard Rate and the Surcharge Tiers
The standard Medicare Part B premium runs approximately $185 per person per month as of this writing — verify the current figure at Medicare.gov, since it adjusts annually. For a married couple, that’s roughly $370/month combined, or $4,440/year, just for Part B. That’s the baseline most retirement planners use.
Then there’s IRMAA — the Income-Related Monthly Adjustment Amount — which adds surcharges in tiers based on your Modified Adjusted Gross Income. Here’s what the tier structure looks like for a single filer (married filing jointly thresholds are approximately double; confirm current figures at Medicare.gov or SSA.gov, as these adjust annually):
- Below ~$106,000: Standard premium — roughly $185/month
- $106,001 – $133,000: First IRMAA tier — roughly $259/month (+$74/month)
- $133,001 – $167,000: Second tier — roughly $370/month (+$185/month)
- $167,001 – $200,000: Third tier — roughly $482/month (+$297/month)
- Above $200,000: Fourth and fifth tiers, rising to roughly $593–$629/month
For a couple, those surcharges double. A married pair who both land in the first IRMAA tier pays an extra $148/month combined — $1,776/year in additional premiums nobody planned for.
The Two-Year Lookback: How Your Pre-Retirement Income Follows You Into Medicare
This is the mechanism that genuinely surprises people. Medicare uses IRS income data with a two-year lag. If you turn 65 this year, Medicare looks at your income from two years ago to determine your premium tier. That means your last couple of years of full-time work income — often your highest-earning years — can follow you directly into retirement and push up your first Medicare premiums.
Say you earned $130,000 in your final working year. You retire at 63, your income drops to $70,000/year from Social Security and IRA withdrawals. But for your first year of Medicare eligibility, the government still sees that $130,000 from two years back. You land in the second IRMAA tier — paying roughly $185/month more per person than the standard rate — even though your current retirement income doesn’t support that classification.
The good news: you can appeal. The Social Security Administration has a form specifically for this — SSA-44 — called the Medicare Income-Related Monthly Adjustment Amount Life-Changing Event form. If your income dropped due to retirement, the SSA can use a more recent year’s income to determine your premium. This appeal process is real, it works, and most people who get hit by IRMAA due to their final working-year income don’t know it exists.
What Counts as Income for IRMAA — This Is Where Plans Fall Apart
Medicare uses your Modified Adjusted Gross Income, which includes more than most people expect:
- Wages and salary
- Pension income
- Taxable Social Security benefits (up to 85% of SS benefits can be taxable)
- Traditional IRA and 401k withdrawals
- Capital gains (including from selling a home that exceeds the exclusion)
- Dividends and interest
- Roth conversions — this one catches people completely off guard
What does NOT count: qualified Roth IRA distributions. Money you pull out of a Roth IRA in retirement doesn’t appear in your MAGI and doesn’t affect IRMAA calculations at all. This is one of the most practical reasons to have Roth assets available in retirement — tax-free income that doesn’t push you into a higher Medicare surcharge tier.
Back to the $90,000 retirement income scenario. A single filer with $90,000 from Social Security plus IRA withdrawals sits below the standard IRMAA threshold and pays the base premium. No problem. But if that same person does a $25,000 Roth conversion in the same year — which many financial planners recommend in the years before Medicare — their MAGI jumps to $115,000, clearing the first IRMAA threshold. That conversion triggers a $74/month surcharge for the following year. That’s $888 in additional Medicare premiums as the price of the conversion.
This is why Roth conversions before Medicare eligibility require careful IRMAA planning — the two-year lookback means a conversion at 63 affects Medicare premiums at 65. The conversion itself may be worth it, but you need to size it against the IRMAA threshold, not just the tax bracket.
Part D Drug Coverage Has Its Own IRMAA Surcharge
Most people don’t realize IRMAA applies to Part D prescription drug coverage as well — not just Part B. If your income exceeds the threshold, you pay the standard Part D plan premium PLUS a separate IRMAA surcharge. At the first tier, that surcharge currently runs around $13/month per person. At higher tiers it climbs to $35, $57, and higher.
It’s not catastrophic on its own. But it’s another $156–$700/year per person that doesn’t show up in generic "Medicare costs $185/month" retirement planning estimates.
Add it up for a couple at the first IRMAA tier for both Part B and Part D: $148/month extra in Part B surcharges + roughly $26/month extra in Part D surcharges = $174/month more than the standard rate. That’s $2,088/year in unplanned Medicare costs — from a single threshold crossing.
How Income Sources Change the Calculation
The practical question for a 65-year-old with $90,000 in retirement income is: what kind of income? The sources matter enormously.
Scenario A — Social Security + Roth IRA withdrawals: If you take $30,000 in Social Security and $60,000 from a Roth IRA, your MAGI might be roughly $25,500 (only the taxable portion of SS counts). You pay standard Part B premium. No IRMAA.
Scenario B — Social Security + Traditional IRA withdrawals: $30,000 SS plus $60,000 from a traditional IRA. Your MAGI is $25,500 (taxable SS) + $60,000 (IRA withdrawals) = $85,500. Still below the threshold. Standard rate.
Scenario C — Pension + traditional IRA + partial SS: $45,000 pension + $30,000 IRA withdrawal + $20,000 SS (85% taxable = $17,000). MAGI = $92,000. Still standard. Close to the line.
Scenario D — Add a Roth conversion or capital gain event: Same income as Scenario C, plus a $20,000 Roth conversion. MAGI = $112,000. First IRMAA tier. $74/month additional per person, two years out.
The math is mechanical, but the planning is where most people need help. If you know your income sources and your projected MAGI for the two years before Medicare kicks in, you can make deliberate decisions about when to convert, when to take capital gains, and how to sequence withdrawals to stay under or within specific tiers.
The HSA as an IRMAA Management Tool
If you’re still working and have access to an HSA-eligible health plan, this is worth knowing: HSA contributions reduce your MAGI. A $4,000 HSA contribution lowers your adjusted gross income by $4,000, which can matter if you’re sitting just above an IRMAA tier in your final working years — the ones that will determine your first Medicare premiums. Maxing your HSA contributions before switching to Medicare has a dual benefit: reducing taxable income now, and building a tax-free medical expense fund you can use in retirement without triggering MAGI.
HSA distributions for qualified medical expenses don’t count toward MAGI at all. A $50,000 HSA balance used to cover medical costs in retirement is effectively invisible to IRMAA calculations. For people who spent their working years building HSA assets, that’s a genuine planning advantage.
What to Actually Do With This Information
First: don’t panic about IRMAA if you’re years away from 65. It’s a planning problem, not a crisis.
Second: run the numbers on your expected income in the two years before you turn 65. What will your MAGI likely be? Are you planning any Roth conversions during that window? Any large asset sales? Knowing your MAGI trajectory lets you make deliberate choices rather than discovering a surcharge after the fact.
Third: if you do get hit by IRMAA based on high prior-year income and your current retirement income is lower, file the SSA-44 appeal. Don’t accept the initial premium as final. The appeal process exists specifically for this situation — retirement income dropping from working-year income — and it’s commonly successful.
Fourth: understand the gap years. What health insurance costs between early retirement and Medicare eligibility is a separate but related problem — COBRA and ACA marketplace coverage can run $800–$1,500/month for a 62-year-old without employer subsidy. Some people bridge those gap years using ACA subsidies tied to income management, which then sets up a lower MAGI for their first Medicare lookback years.
The planning moves are connected. How you manage income at 62, 63, and 64 directly affects your Medicare premiums at 65 and 66. Most retirement software doesn’t model this chain unless you specifically ask it to.
Resources Worth Having
For understanding exactly how Medicare premiums, supplements, and drug coverage interact, a comprehensive Medicare guide is worth having before your coverage starts — not after. The specific rules around what’s covered, when to enroll, and how premiums are calculated have enough complexity that most people benefit from a reference that explains it in plain terms rather than official government language. On the broader retirement income planning side, a retirement income tax strategy book is the missing piece for households that know how to accumulate assets but haven’t thought carefully about how to draw them down in the most tax-efficient sequence. And for anyone seriously managing IRMAA in the pre-Medicare years, a Roth conversion planning guide helps clarify when conversions make sense, how large to size them, and how to model the tradeoffs against Medicare costs two years out.
Check Your IRMAA Exposure Now
You can look up the current IRMAA thresholds and your projected premium tier directly at Medicare.gov or SSA.gov. If you’re within five years of Medicare eligibility, run your estimated MAGI for the coming two years against the published thresholds — it takes about 15 minutes. If you’re already enrolled and believe you were incorrectly assessed based on prior-year income that no longer reflects your situation, call SSA at 1-800-772-1213 and request the SSA-44 form. One appeal can save a couple over $2,000/year in unnecessary Medicare surcharges. That’s worth a phone call.