Key Takeaways:
• Medicare premiums are not one size fits all. The more you earn as measured by your Modified Adjusted Gross Income (MAGI), the more you may pay for Part B and Part D coverage.
• MAGI is not equivalent to Adjusted Gross Income. A few types of income get added back in, and retirees often overlook them until a surprise premium notice arrives.
• A surcharge based on old income does not have to be permanent. If your income has genuinely dropped, you can ask Medicare to take a fresh look.
A common misconception is that Medicare premiums are a fixed monthly cost that stays roughly the same year to year. For a growing number of retirees, that is not quite how it works. Once income crosses certain thresholds, Medicare charges more for Part B and Part D coverage, and the number that decides where you land is your Modified Adjusted Gross Income, or MAGI.
Understanding how MAGI is calculated, and how it can slowly climb higher than expected, is one of the more overlooked pieces of retirement income planning. A single large withdrawal or a well-timed Roth conversion can shape what you pay for healthcare two years down the road.
How MAGI Affects Medicare Premiums
Medicare Part B and Part D premiums increase once your MAGI passes certain thresholds, an adjustment the government calls the Income-Related Monthly Adjustment Amount, or IRMAA.1 The surcharge sits on top of your regular premium and applies separately to both parts of coverage.
Social Security does not use this year’s income to make the determination. It pulls your tax return from two years earlier, so a decision you make today about withdrawals or conversions will not show up in your premiums until later. Retirees sometimes receive a surcharge notice reflecting an income level they no longer have.
Because the brackets operate on a sliding scale with sudden jumps, even slightly crossing into the next tier can significantly increase your monthly premium. This happens because the surcharge applies to the full year, not just the portion of income above the threshold.
Understanding Modified Adjusted Gross Income
It is easy to assume MAGI and Adjusted Gross Income (AGI) are the same number, since MAGI starts with your AGI as its foundation. For Medicare purposes, a few items get added back in, most notably tax-exempt interest, such as income from municipal bonds.
This is where retirees most often miscalculate. Municipal bond interest feels tax-free in every sense, so it is easy to leave it out of a mental tally of taxable income, yet it still counts toward MAGI. The result can be an unplanned surcharge.
Please Note: MAGI is defined slightly differently depending on the program. The version used for Affordable Care Act marketplace plans is not identical to the version Medicare uses for Part B and Part D surcharges, which follows the IRS definition.
2026 Medicare IRMAA Brackets and Surcharge Amounts
Each year, Medicare updates IRMAA income thresholds, and the brackets are indexed to inflation, so they tend to shift upward over time.3 For 2026, the surcharge begins once MAGI exceeds a set threshold for individuals, roughly double that for couples filing jointly, and rises across five tiers as income climbs further.
What makes these brackets worth watching is the cliff effect built into the structure. There is no phase-in for landing a dollar over a threshold. A retiree who sells an investment property or takes an unusually large withdrawal in a single year can trigger a jump they did not anticipate.
Strategies to Manage MAGI and Reduce Medicare Surcharges
None of these guarantee you will avoid IRMAA altogether, but many retirees find that a little foresight goes a long way toward smoothing out the years when income tends to spike.
•Roth conversions, timed carefully: converting in years when income is naturally lower, rather than all at once, can help keep MAGI from spiking in any single year.
•Sequencing withdrawals thoughtfully: drawing from taxable, tax-deferred, and tax-free accounts in a coordinated order helps manage how much taxable income shows up each year.
•Charitable giving through your IRA: qualified charitable distributions send IRA funds directly to a charity, satisfying a required minimum distribution without adding to your MAGI.4
•Harvesting investment losses: offsetting gains with losses in a taxable account can reduce the income that counts toward MAGI in a given year.
Common Mistakes That Trigger Unexpected IRMAA Costs
A few patterns tend to catch retirees off guard more than others:
•Large one-time distributions: selling an investment or taking an oversized withdrawal in a single year can push MAGI well past a threshold.
•Overlooking tax-exempt income: municipal bond interest still counts toward MAGI, even though it is not taxed the same way as ordinary income.
•Converting too much to Roth at once: a large single-year conversion can be tax-efficient but costly for Medicare, especially if it pushes you into a higher IRMAA tier.
•Losing track of the two-year lag: a high-income year, even one that never repeats, can affect premiums two years later.
Who Is Most Affected by Medicare Surcharges
IRMAA doesn't single out the wealthy so much as it catches anyone whose income, in a given year, lands above the threshold. Whether due to a planned retirement, an unexpected windfall, or simply the structure of your investment portfolio, these thresholds can impact retirees across a wide range of income levels. Awareness of your triggers is the first step in avoiding an unpleasant surprise.
A few situations tend to come up again and again:
Retirees with significant investment income or large RMDs
Substantial dividends, interest, capital gains, or required minimum distributions from tax-deferred accounts can push MAGI higher year after year, sometimes without much active decision-making involved.
Dual-income couples adjusting to retirement
When one spouse retires while the other continues working, or when Social Security and pension income stack on top of continued earnings, combined MAGI can land higher than either spouse expected on their own.
Anyone in a transition year
Selling a piece of property, receiving deferred compensation, or exercising stock options can create a one-time income spike that looks nothing like a typical year, yet still counts fully toward MAGI.
Even middle-income retirees are worth including in this list. A single unusual year, a home sale, an inheritance, a larger-than-normal RMD can be enough to cross the first IRMAA threshold, even for someone who has never come close to it before. Understanding the rules ahead of time is what turns a possible premium hike into something you saw coming.
Appealing a Surcharge After a Life-Changing Event
If your income has genuinely dropped, you don't have to accept the higher premium. Social Security allows you to utilize Form SSA-442 to request a review after a life-changing event, such as retirement, marriage, divorce, or the death of a spouse. You'll just need to show the change is real, typically with a retirement letter, a recent tax return, or a pay stub reflecting reduced income.
Once approved, Social Security can lower your premiums going forward, and sometimes retroactively. If your request is denied, you can ask for reconsideration or a formal hearing.
Please Note: Filing soon after the event, rather than waiting for tax season, helps limit how long you pay the higher rate.
Modified Adjusted Gross Income (MAGI) and Medicare Surcharges FAQs
1. How is MAGI different from AGI for Medicare purposes?
MAGI starts with your AGI and adds back a few items, most commonly tax-exempt interest. The gap is often modest, but it can matter near an IRMAA threshold.
2. When does the Social Security Administration review my income for IRMAA?
Your premium is typically based on the tax return from two years before the current year, reviewed annually when the following year’s premiums are set.
3. Can I appeal a Medicare surcharge if my income has dropped?
Yes. If you have experienced a life-changing event such as retirement or the loss of a spouse, you can file Form SSA-44 to ask Social Security to use more recent income.
4. Do Roth withdrawals count toward MAGI?
Qualified withdrawals from a Roth IRA are generally not included in MAGI, part of why many retirees use Roth accounts to help manage income near an IRMAA threshold.
5. How far back does Medicare look when determining my premium?
Medicare generally uses your tax return from two years prior. If that return is not available, Social Security may use information from three years prior.
6. Will my Medicare surcharge ever go back down automatically?
It can. Since IRMAA is recalculated each year based on your two-years-prior tax return, a drop in income should lead to a lower premium in a later cycle without a special request.
How We Help You Control Medicare Costs in Retirement
MAGI rarely gets attention until it affects something concrete, like a Medicare premium notice that is higher than expected. Understanding how it is calculated and how the IRMAA brackets work can turn a confusing surprise into something far more predictable.
Our team looks at Roth conversions, withdrawal sequencing, and charitable giving through the lens of Medicare costs, not just tax brackets. We model income scenarios so you can see how a decision today might affect premiums two years from now, before you make it.
We also work alongside your CPA or tax professional to keep your income strategy and Medicare exposure aligned year after year. If you would like to talk through how MAGI factors into your plan, we invite you to schedule a complimentary consultation with our team.
Resources:
2. Request to Lower an Income-Related Monthly Adjustment Amount (IRMAA)
4. Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)
This material was prepared by Advisor Rankings for John Gigliello’s use.