Here’s a startling fact: Your income from two years ago could significantly impact how much you pay for Medicare in 2026. Yes, you read that right—your 2024 earnings will determine whether you’ll face the Medicare surcharge, officially known as the Income-Related Monthly Adjustment Amount (IRMAA), when enrollment opens on October 15, 2026. But here’s where it gets controversial: Many retirees are blindsided by this surcharge, which can more than double their monthly premiums for health and prescription drug coverage. And this is the part most people miss—IRMAA isn’t just a minor fee; it’s a hefty addition that can devour a substantial chunk of your Social Security cost-of-living adjustment (COLA).
Let’s break it down. If your taxable income exceeds certain thresholds, you’ll be on the hook for IRMAA on top of your standard Medicare premiums. For instance, individuals earning between $109,001 and $137,000 (or couples filing jointly with $218,001 to $274,000) could pay an extra $82.60 monthly for health coverage and $14.50 for drug coverage. At the higher end, those earning over $500,001 (or couples over $750,001) face an additional $495.60 per month for health coverage and $85.80 for drugs. Bold statement alert: This means some retirees could see their Medicare costs skyrocket, leaving them with less money for other essentials.
The numbers are eye-opening. Only about 8% of Medicare enrollees—roughly 5.1 million people—currently pay the Part B surcharge, but that’s a sharp increase from the 1.7 million who paid when the surcharge began in 2007. By 2034, that number is projected to jump to 8.6 million. Similarly, nearly 4.5 million Americans pay the Part D drug plan surcharge today, with forecasts reaching 7.7 million in the next decade. Thought-provoking question: Is this a fair system, or are retirees being unfairly penalized for their past earnings?
So, how can you avoid this financial surprise? Experts like Michael Chuah, an attorney at Paxterra Law, stress the importance of planning. “People often overlook IRMAA and get hit with these surprises,” Chuah says. Since IRMAA looks at your income from two years prior, what you do today directly affects your future premiums. For example, Roth conversions—moving money from pre-tax accounts to post-tax Roth accounts—can help keep your future income lower, thereby reducing IRMAA. But here’s the catch: Roth conversions count as taxable income in the year you make them, so timing is critical.
Nick Bour, CEO of Inspire Wealth, advises contributing up to one-third of your retirement savings to Roth accounts before retiring. “Asset location is critical as you approach retirement,” he notes. Additionally, consider Roth conversions early in retirement when your income is lower. However, this is where opinions diverge: Some argue that Roth conversions are a risky strategy, especially if you’re already in a high tax bracket. What’s your take? Is the potential savings worth the upfront tax hit?
If you’re already 62 and feeling behind, don’t panic. Start planning now. Reducing your work hours to lower your income or strategically timing Roth conversions can still help mitigate IRMAA. Another option? Appeal the surcharge. Life-changing events like marriage, divorce, or a significant loss of income can qualify you for a reduced IRMAA, according to the Social Security Administration. Controversial interpretation: Some retirees intentionally spike their income in one year through Roth conversions, then appeal IRMAA the following year when their income drops. Is this gaming the system, or smart financial planning?
Here’s the bottom line: Medicare costs are rising, and IRMAA could be a costly surprise if you’re not prepared. Whether you’re 30 or 60, now is the time to plan. Final thought-provoking question: Are you ready to take control of your retirement finances, or will you leave it to chance? Share your thoughts in the comments—we want to hear from you!
