IRMAA Explained: How a Roth Conversion or Big Capital Gain Can Quietly Raise Your Medicare Bill

Most people think of Medicare premiums as a fixed monthly cost. For a meaningful share of retirees, they are not. Under a rule known as IRMAA, short for Income-Related Monthly Adjustment Amount, Medicare Part B (medical insurance) and Part D (prescription drug coverage) premiums rise in steps as income climbs above certain thresholds. The surcharge is administered by the Social Security Administration, which uses income data transmitted by the IRS, and it can catch retirees off guard because of a built-in two-year lag.

How IRMAA Is Calculated

IRMAA is based on Modified Adjusted Gross Income, generally adjusted gross income plus tax-exempt interest, from the tax return filed two years before the current Medicare year. For example, premiums charged in 2026 are typically based on the tax return for the 2024 tax year. SSA sets income brackets each year, and beneficiaries whose MAGI exceeds the base threshold pay a standard premium plus an added amount that increases at each higher tier. The Centers for Medicare & Medicaid Services (CMS) publishes the exact premium and surcharge amounts annually, since they are adjusted for medical cost trends and are not fixed year to year.

Why the Two-Year Look-Back Matters

The look-back period is where many retirees get tripped up. Because SSA is looking at income from two years earlier, a single unusual event, such as converting a traditional IRA to a Roth IRA, selling a highly appreciated home or investment property, taking a large capital gain, or even a spouse's final year of high wages, can inflate MAGI in that base year and trigger a higher IRMAA bracket two years later, even if current income has since dropped. Because Part B and Part D surcharges apply per person, married couples who both experience the income spike can see the effect doubled across two Medicare accounts.

Who Tends to Be Affected

• Retirees taking large one-time IRA or 401(k) withdrawals to fund a home purchase or pay off debt
• Investors realizing significant capital gains from selling stock, a business, or real estate
• Individuals doing multi-year Roth conversion strategies without modeling the IRMAA impact
• Widows or widowers who lose a spouse and shift from joint to single tax filing, since single-filer thresholds are lower
• Retirees whose required minimum distributions (RMDs) from tax-deferred accounts push MAGI into a higher bracket

Appealing an IRMAA Determination

SSA recognizes that income two years ago does not always reflect current circumstances. Beneficiaries who experienced a qualifying 'life-changing event' can request a reduction using Form SSA-44, Medicare Income-Related Monthly Adjustment Amount – Life-Changing Event, available on the SSA website. Recognized events include marriage, divorce, death of a spouse, work stoppage or reduction, loss of income-producing property due to a disaster, and loss of pension income. A one-time capital gain or a planned Roth conversion generally does not qualify as a life-changing event, so those situations usually cannot be appealed after the fact; the surcharge has to be planned around in advance instead.

Planning Considerations, in General Terms

• Model multi-year MAGI before executing large Roth conversions or asset sales, factoring in the two-year IRMAA look-back
• Consider spreading large taxable events across multiple years rather than realizing them all at once
• Coordinate RMD timing and charitable giving strategies, such as Qualified Charitable Distributions, which can lower reportable MAGI for IRA owners age 70½ and older
• Review IRMAA brackets and thresholds each year directly from SSA or CMS, since they are adjusted annually and are not the same as ordinary income tax brackets