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In today’s blog, we’re going to discuss 2025 Medicare Premiums and how a little-known factor called IRMAA can potentially inflate them by thousands of dollars per year.
We will also discuss the income thresholds that can trigger these surcharges and some strategies for you to consider when building out your plan in retirement to try to limit or even eliminate these additional costs.
Quite frequently we find in our discussions with folks planning to retire that they assume Medicare has a single, flat price tag.
Essentially you sign up, you pay the same as everyone else, and that’s it.
But that assumption doesn’t hold up and in reality, your premium could end up being two or even three times higher than your neighbor’s. That main factor that plays into this is your reported income, not your health needs.
So let’s break this down. First things first, in 2025 the standard monthly Medicare Part B premium is $185.
But with the highest IRMAA surcharge, that number can jump to over $600 per month.
And for those of you who are not aware of what IRMAA is, it stands for Income-Related Monthly Adjustment Amount, and it’s a surcharge on Medicare Part B and Part D if your Modified Adjusted Gross Income exceeds certain thresholds.
Same coverage, same doctor visits, nothing extra—just a larger bill due to having higher income.
To put the scale in perspective, for a married couple where both spouses are enrolled and utilizing Medicare in 2025, the additional costs at the upper end of the Modified Adjusted Gross Income brackets could amount to over $12k when compared to a couple below the IRMAA threshold.
When you multiply that outcome over several years, the numbers become quite hard to ignore. And normally, Medicare Part B is subsidized so that the government pays about 75% of the program’s total cost and beneficiaries pay around 25%. But with IRMAA, higher‑income retirees are required to shoulder more than that 25%.
In other words, the surcharge is framed as an extra contribution toward the system, but for the individual retiree it can end up feeling like a stealth tax buried inside the bill.
Now as we mentioned earlier, a common problem we see is that many times retirees don’t see this cost coming.
It’s estimated that roughly 4 to 5 million beneficiaries of Medicare face IRMAA surcharges each year.
And while some may have planned carefully for taxes and investments, all too often we encounter situations where their planning didn’t account for how those income sources could inflate Medicare premiums.
With that, we find it important to understand this next piece to the puzzle.
These potential surcharges are not based on your most recent income but rather based on a two‑year lookback.
So your costs in 2025 would be based on your taxes filed for 2023.
And this two‑year lookback isn’t just a one‑time adjustment when you first retire.
It’s a rolling rule built into the system where your 2026 premiums will be based on your 2024 tax return, and your 2027 premiums will be based on your 2025 return.
Now picture this- Imagine you earned your final full-time salary in 2023 and then stepped into retirement in 2024.
By 2025, your income may have dropped quite a bit comparatively speaking, maybe you’re drawing smaller Social Security checks or modest investment withdrawals.
But Medicare still charges premiums according to that higher 2023 income.
The same issue can hit if you had a one‑time income spike for a variety of reasons.
Selling a property, taking a business payout, or even withdrawing a large portion of a pre-tax retirement account in 2023, are all things that could impact your premiums for 2025.
Knowing this can put a real emphasis on the timing of income in certain situations.
Fortunately, it’s also important to note that you aren’t simply stuck paying these IRMAA surcharges in perpetuity if things change.
Medicare does allow for adjustments over time if your Modified Adjusted Gross Income were to decrease below the certain thresholds as well.
For instance, if retirement cut your income in half, or if you experienced another life event that permanently reduced your earnings, there are ways to challenge the default numbers.
So understanding when and how to respond can be helpful as some retirees may assume there’s no recourse which could result in paying unnecessarily inflated premiums for a year or two.
And that’s where this next part of this discussion comes in.
Because while the two‑year lookback sets the baseline, there could be circumstances where you are able provide proof if your current income is much lower than what those old tax returns showed.
In the event of a qualifying life change where you’ve experienced a situation that significantly reduced your income, you can file a Form SSA‑44 to request that Social Security recalculate your premiums.
And while not every set of circumstances qualifies, Social Security does recognize a specific set of life-changing events which include retirement or reduction in work, Divorce, the death of a spouse, the loss of income‑producing property, or a significant pension reduction or settlement.
These are the circumstances where your financial picture may have materially shifted, and the system could allow for a recalculation.
If you did have a life-changing event and are thinking of filing a claim, be prepared to gather certain documentation.
This could include things like an employer’s retirement letter, a signed or amended tax return, settlement or pension notices, or in the case of a spouse’s passing, a death certificate.
Social Security needs verification that your income truly dropped due to one of the approved events. Without evidence, the system defaults to assuming your old income still applies.
And while this appeal process could potentially take the sting out of a surcharge after the fact, there are planning steps we walk though with the goal of trying to prevent these surcharges before you get hit with them.
One of the main factors we consider is trying to design one’s retirement income in a way that keeps Modified Adjusted Gross Income below the IRMAA thresholds from the start if possible.
In a broad sense, we focus on three specific categories.
The first being Roth conversions as these shift money from Traditional Pre-Tax Retirement Accounts into a Roth Retirement Account, which in certain situations may be able to help reduce taxable income down the road.
While the conversion itself counts as taxable income in the year it occurs, there is the potential to lower those pre-tax balances in the long-haul compared to what they might have been otherwise.
It is also important to note that these conversions can increase one’s MAGI in the year they occur so timing can be crucial.
And if we’re implementing these conversions when working through our clients’ planning, something we weigh out is will the potential benefit in dollars and cents for making the conversion outweigh the potential IRMAA surcharges that could come as a result of doing so.
The second tool we consider is the use of Qualified Charitable Distributions, or QCDs.
For folks starting at age 70 ½, this strategy allows IRA withdrawals to be sent directly to a qualified charity.
A QCD counts toward required minimum distributions if you are at the age where you are taking them but does not count towards your Modified Adjusted Gross Income up to the limit of $108,000 per IRA owner for 2025.
To illustrate this, let’s say in 2025 I’m 75 years old and my Required Minimum Distribution is $80k.
If I take the full RMD, this will add to my income for the year, which could end up causing IRMAA surcharges.
Instead, if I make the choice to donate that $80k, I’ll have satisfied my RMD for the year, and none of it will show as taxable income, hopefully helping me avoid those IRMAA charges.
The third tool we use is sequencing withdrawals from different account types, and choosing when to start Social Security with intention rather than by default.
In some cases, planning for which accounts you tap into first in retirement can translate directly to your tax situation.
For example, beginning withdrawals from taxable brokerage accounts or carefully planned IRA withdrawals before Social Security starts could result in keeping one’s MAGI less volatile over the course of time.
Similarly, delaying or accelerating Social Security could shift when taxable benefits begin to appear on your return.
Precision here can be imperative because the IRMAA brackets operate like cliffs, as opposed to gradual slopes.
One dollar under the threshold, can help you stay at the base premium while one dollar over, and your premiums could jump by hundreds per month for the entire year.
We like to think about sequencing income in a way which is less about one action and more about creating a rhythm over time.
In some cases, retirees might deliberately draw from taxable accounts in the beginning phase of retirement, which could produce less taxable income in the immediate and they hold back on IRA withdrawals until later when Medicare costs are already understood.
Alternatively, some retirees may choose to map Roth conversions into lower‑income years between retirement and Social Security to use that window without colliding with Medicare.
The common theme between the two scenarios are that these are coordinated choices, not isolated moves, looking at things in a more holistic manner.
The broader point is that surcharges can come with some sense of predictability when planning ahead.
The brackets are published in advance, and while everything can change over time, educating yourself or working with a team of trusted professionals could help you to make informed decisions.
The Final Word:
Our approach to retirement isn’t just about tax efficiency or portfolio growth.
Each decision made can tie into another so it can be helpful to fully understand the impacts of the choices being made and the ramifications of such choices.
When working through the planning process and looking at various options whether it be Roth conversions, qualified charitable distributions, or even income planning in general and trying to build a fluid journey, it’s important to understand how some of these decisions can be interconnected.
While investment returns and markets in general might be unpredictable over time, understanding these other caveats such as planning for healthcare costs, tax planning, and even estate planning reviews are all pieces to the puzzle we like to utilize.
Thanks for reading!
Disclaimer:
Rockline Wealth Management (RWM) is a registered investment adviser located in Islip Terrace, NY. RWM is registered with the U.S. Securities and Exchange Commission. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission.
Rockline Wealth Management does not offer tax or legal services. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
All information presented is believed to be factual at the date of publication. This blog should not be viewed as advice for any individual and is intended for general informational purposes only.
All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's investment portfolio.
Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. The opinions expressed and material provided are for general information and should not be considered a solicitation of financial advice or for the purchase or sale of any security.
Real-life and fictional examples given in this blog should not be viewed as guaranteed outcomes when investing. Past performance is not indicative of future results and every individual’s investment circumstances are different. Individuals should consult their financial professional before implementing their investment plan.
Certain information contained herein constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events, results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. Nothing contained herein may be relied upon as a guarantee, promise, assurance or a representation as to the future.