IRMAA: Why Your Medicare Costs are Higher Than You Expected (and What You Can Do About It)

Jeremy Keil explains how IRMAA (Income-Related Medicare Adjustment Amount) is calculated and how you can appeal it to potentially lower your healthcare costs in retirement.

One of the most frustrating retirement expenses is the one you never knew existed.

You’ve retired. Your income is lower than it was during your working years. You’re adjusting to Medicare and settling into retirement. Then a letter arrives informing you that your Medicare premiums are going up because of income you earned two years ago.

Most people have the same reaction:

“How can Medicare charge me based on money I don’t even make anymore?”

This week on the “Retire Today” podcast, I covered one of the least understood retirement costs: IRMAA, which stands for Income-Related Monthly Adjustment Amount. While the name is forgettable, the impact can be significant. Depending on your income, Medicare premiums can increase substantially above the standard amount. The good news is that many retirees have options they don’t realize exist.

Why Medicare Uses Income From Two Years Ago

At first glance, the system seems unfair.

If you’re retired today, why should Medicare care what you earned years ago?

The reason is mostly administrative.

When Medicare determines your premiums for the current year, it doesn’t yet have complete information about your current income. Tax returns may not be filed, extensions may still be pending, and income information isn’t finalized.

As a result, Medicare relies on tax returns from two years prior when calculating IRMAA surcharges.

For people whose income has remained relatively stable, that system works reasonably well.

For retirees, it often doesn’t.

The Retirement Writer Who Received an IRMAA Notice

One of the reasons I decided to cover this topic was an article by Sandra Block in Kiplinger’s magazine.

Sandra has spent years writing about retirement and personal finance. She even wrote about IRMAA several years ago. Yet recently she received her own notice informing her that Medicare premiums would increase because of income reported on an earlier tax return.

What stood out wasn’t that she received the notice.

It was that her situation mirrors what many retirees experience.

A person retires.
Income drops.
Life changes.

But Medicare is still looking backward.

That’s exactly why the appeal process exists.

When Retirement Changes the Equation

The Social Security Administration recognizes that major life events can dramatically change your financial situation.

Retirement is one of them.

In fact, what Medicare calls a “work stoppage” is one of the most common reasons retirees successfully appeal IRMAA surcharges.

The logic is straightforward.

If Medicare is charging you based on a salary you no longer earn, it makes sense to give you an opportunity to demonstrate that your circumstances have changed.

Unfortunately, many retirees don’t realize they can do that.

A Real Client Example

Not long ago, I met with a prospective client named John.

John had retired in January 2024. Prior to retirement, his advisor had recommended a Roth conversion. The conversion itself wasn’t necessarily the problem.

The problem was that nobody explained how it could affect future Medicare premiums.

A couple of years later, John and his wife received notice that they had crossed one of the IRMAA thresholds.

Naturally, they were frustrated.

The Roth conversion had pushed their income higher, and now they were paying additional Medicare costs because of it.

As we reviewed the details, something important emerged.

Yes, the Roth conversion increased income.

But part of the income that pushed them over the threshold came from wages earned before John retired. He had a legitimate work stoppage event because he was no longer employed.

That meant he qualified to file an appeal.

We discussed the SSA-44 form, the documentation needed to support the retirement date, and the appeal process.

A few weeks later, John emailed me.

His appeal had been approved.

The extra Medicare premiums were removed, and the amounts already withheld were refunded.

The Mistake Many Retirees Make

Whenever IRMAA comes up, I often see retirees make one of two mistakes.

The first is ignoring it entirely.

The second is becoming so afraid of it that they stop doing otherwise beneficial planning.

Roth conversions are a perfect example.

Some retirees hear that Roth conversions can increase Medicare premiums and immediately conclude they should never do one.

That’s usually the wrong conclusion.

The better question is:

What happens if you don’t?

In many situations, paying slightly higher Medicare premiums for a few years may reduce required minimum distributions, lower future tax bills, and keep you from reaching even higher IRMAA brackets later in retirement.

Good retirement planning requires looking at the entire picture.

Medicare costs matter.

Taxes matter.

Future required minimum distributions matter.

The goal isn’t to minimize one line item.

The goal is to improve the overall outcome.

Know Your Options

One of the most valuable tools available to retirees is Social Security Form SSA-44.

This form allows retirees to request a reduction in Medicare premiums when a qualifying life-changing event has occurred. Retirement, work reduction, death of a spouse, divorce, and several other situations can qualify.

The key is understanding that receiving an IRMAA notice doesn’t automatically mean you’re stuck with it.

The notice may be correct.

Or it may be based on circumstances that no longer exist.

The only way to know is to evaluate your situation.

The Bottom Line

IRMAA is one of those retirement expenses that surprises people because nobody talks about it until it shows up.

But once you understand how the system works, it becomes another planning consideration rather than a retirement disaster.

The bigger lesson is this:

Retirement decisions rarely exist in isolation.

Medicare premiums, taxes, Roth conversions, retirement income, and Social Security all interact with one another.

The retirees who make the best decisions aren’t necessarily the ones who avoid every surcharge.

They’re the ones who understand how each piece fits into the larger retirement plan.

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About the Author:

Jeremy Keil, CFP^®, CFA is a retirement financial advisor with Keil Financial Partners, author of Retire Today: Create Your Retirement Income Plan in 5 Simple Steps, and host of the Retirement Today blog and podcast, as well as the Mr. Retirement YouTube channel.

Jeremy is a contributor to Kiplinger and is frequently cited in publications like the Wall Street Journal and New York Times.

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Additional Links:

• Buy Jeremy’s book – Retire Today: Create Your Retirement Master Plan in 5 Simple Steps
• “Why I Decided to Appeal My Medicare IRMAA Surchage” by Sandra Block, Kiplinger.com 
• Form SSA-4 from the Social Security Administration, ssa.gov 
• “Appeal Your IRMAA – EXTRA Medicare Costs – and SAVE THOUSANDS!” Mr. Retirement YouTube Channel
• Create Your Retirement Master Plan in 5 Simple Steps: 5StepRetirementPlan.com 

Connect With Jeremy Keil:

• Keil Financial Partners
• LinkedIn: Jeremy Keil
• Facebook: Jeremy Keil
• LinkedIn: Keil Financial Partners
• YouTube: Mr. Retirement
• Book an Intro Call with Jeremy’s Team

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