Medicare enrollment for 2026 opens on October 15. Do you know what you earned two years ago?
Your 2024 income will determine if you’ll pay the Medicare surcharge, or income-related monthly adjustment amount (IRMAA), next year. If taxable income exceeds certain thresholds, Medicare and Medicare Advantage beneficiaries must pay IRMAA plus standard premiums. IRMAA also applies to any prescription drug coverage.
Medicare premiums are expected to rise by a near record dollar amount next year and eat a chunk of the Social Security cost-of-living adjustment (COLA) older Americans may receive. IRMAA can more than double the standard monthly premium for health coverage and almost double the drug premium.
“Medicare is taken out of Social Security, so it can be very painful,” said John Jones, investment adviser at Heritage Financial. “Social Security could do nothing but pay for Medicare.”
Only about 8%, or 5.1 million, Medicare enrollees pay the Medicare Part B surcharge, but that’s up from 1.7 million Americans when the surcharge began in 2007 to help fund Medicare, the Medicare Trustees Report said. The number of people paying IRMAA is seen rising to 8.6 million in 2034.
Nearly 4.5 million Americans pay the Part D drug plan surcharge, but that’s also increasing with forecasts for 7.7 million in 2034.
IRMAA income thresholds haven’t been finalized for 2026. However, the Medicare Trustees Report estimated that in addition to the expected standard $206.50 monthly Medicare premium and various plan premiums for prescription drug coverage, high earners will pay:
Americans focused on saving as much as they can for retirement often overlook IRMAA “and get these surprises,” said Michael Chuah, attorney at Paxterra Law. “People need to plan. Since IRMAA is a two-year lookback, what you do today affect what premiums look like tomorrow.”
Ideally, Americans plan for retirement throughout their lives – beginning with saving allowances as children, maxing out retirement plans and company matches as adults and taking advantage of lower-income years during layoffs or staying home to have kids to do Roth conversions, advisers said.
Roth conversions, which move money from traditional pre-tax accounts to post-tax Roth accounts, help keep future income lower and IRMAA down, advisers said.
At age 73, required minimum distributions (RMDs) from tax-deferred retirement accounts like 401(k)s begin. Distributions are taxable income, which if high enough, trigger IRMAA. Roth accounts aren’t subject to RMDs.
“Asset location is critical as you get close to retirement,” said Nick Bour, chief executive of Inspire Wealth. Americans should aim to contribute up to 1/3 of their money to Roth accounts before retirement and then consider Roth conversions early in retirement when income is lower, he said.
Advisers warned Roth conversions must be strategically planned since amounts converted from tax-deferred retirement funds into Roth accounts count as taxable income. Conversions also require cash to pay taxes at the time of conversion, advisers warned.
Early planning allows more flexibility like taking advantage of tax brackets throughout adulthood. Say, your individual income is $70,000 and marginal tax rate is 22%. The next 24% tax bracket doesn’t hit until income surpasses $105,700 in 2026. “Fill up” your 22% tax bracket by doing enough Roth conversins to reach but not breach $105,700, advisers said.
If you missed the early boat, start today, advisers said
Americans approaching age 65, when people can enroll in Medicare, should consider working less to lower their income, they said. Simultaneously, do some Roth conversions if they can afford it.
“One to two years isn’t enough time to do major shifts,” Bour said, but people can mitigate IRMAA through retirement.
They can also ‘rip the band-aid’, he said. “If you can’t avoid (IRMAA), then shorten the time you pay it” by spending a couple of years doing most of your Roth conversions and only paying for a couple of years of IRMAA.
Jones said people can also try appealing IRMAA. A life-changing event like marriage, divorce, death of a spouse, loss of income, and an employer settlement payment that reduced your household income could qualify you for a reduced surcharge, the Social Security Administration said.
“You can camouflage Roth conversions,” Jones said. “Do huge Roth conversions, which spikes your income. But if you have a significant life event and say that was a one-off, (IRMAA) can get refunded to you.”
For instance, if you’re self-employed, work normally for a year and do Roth conversions, which means your income will be high that year. The next year, cut your hours and write an IRMAA appeal letter because your income’s dropped. “Sometimes you can even get two years,” Jones said.
Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.