Avoiding IRMAA Can Actually Cost You More in Retirement: A Financial Adviser Explains Why and What You Can Do Instead

Many Retirees Few Acronyms

For many retirees, few acronyms generate more anxiety than IRMAA.

Countless articles, videos and financial discussions warn retirees to stay below the next Medicare premium threshold. But what if avoiding an IRMAA surcharge causes you to pay more over the course of retirement?

In many cases, that's what can happen when annual tax planning takes priority over lifetime tax planning.

The income-related monthly adjustment amount (IRMAA) is the Medicare surcharge higher-income beneficiaries might pay for Medicare Part B and Part D coverage.

Because IRMAA is based on your modified adjusted gross income (MAGI) from two years earlier, many retirees become intensely focused on staying below the next surcharge threshold.

That focus is understandable — but it can also be expensive.

Many retirees reject Roth conversion strategies or other tax-planning opportunities solely because they might temporarily increase Medicare premiums. In some cases, avoiding an IRMAA surcharge can ultimately result in paying significantly more in lifetime taxes.

The better question isn't: "How can I avoid IRMAA this year?"

Total Taxes

Instead, ask: "How can I minimize the total taxes and costs my family is likely to pay over the course of retirement?"

Those are two very different objectives.

About Adviser Intel

The author of this article is a participant in Kiplinger's Adviser Intel program, a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

Think beyond this year's tax return

Traditional tax planning often centers on reducing this year's tax liability.

Lifetime tax planning takes a broader view by evaluating how today's decisions affect taxes, retirement income and wealth in the next 20 to 30 years.

That distinction matters because strategies that intentionally increase taxable income today — such as Roth conversions — can sometimes reduce taxes substantially later.

Roth IRA

Depending on the circumstances, converting part of a traditional IRA to a Roth IRA could:

Reduce future required minimum distributions (RMDs)

Lower taxable income later in retirement

Reduce the taxation of Social Security benefits

Provide additional tax-free assets for future spending

Improve tax flexibility throughout retirement

Reduce taxes for a surviving spouse

Leave heirs with more tax-efficient inheritances

Tax Year

None of those benefits can be evaluated by looking at only one tax year.

Focus on the right goal

If your goal is to …

You may decide to …

Potential long-term result

Avoid this year's IRMAA surcharge

Limit or skip Roth conversions

Lower Medicare premiums today, but potentially higher RMDs, higher lifetime taxes and larger future IRMAA surcharges

Minimize Lifetime Taxes

Evaluate Roth conversions using long-term projections

Might temporarily pay higher Medicare premiums while potentially reducing lifetime taxes, future RMDs and taxes for heirs

Key takeaway: IRMAA is an important planning variable — but it should rarely outweigh a well-supported strategy that meaningfully reduces lifetime taxes.

Understanding the tax valley

Many retirees experience a period after they stop working but before claiming Social Security and before required minimum distributions begin.

During these years, taxable income might be temporarily lower than it will be later in retirement.

Financial planners often refer to this as a tax valley — a window that might present an opportunity to recognize income at relatively favorable tax rates.

Hypothetical Married Couple

Consider a hypothetical married couple, both age 63, with $2 million in traditional IRAs.

Because they recently retired, they temporarily find themselves in the 24% federal income tax bracket