IRMAA is suddenly the “it” topic for advisor seminars, webinars, and more.
For the uninitiated, IRMAA, or the Income-Related Monthly Adjustment Amount, is a surcharge placed on Medicare Part B and Part D premiums for certain higher-earning Americans. This IRMAA surcharge is applied in addition to the regular Medicare Part B and Part D premiums a saver pays.
Congress created IRMAA in 2003 as part of the Medicare Modernization Act. It was seen as a way to support the financial solvency of Medicare by having higher-income Americans pay more for their coverage.
So why are advisors suddenly talking about IRMAA – and how can you leverage it to grow your practice? I’ll outline everything you need to know in this quick IRMAA primer.
How Does IRMAA Work?
IRMAA surcharges are based on a filer’s Modified Adjusted Gross Income (MAGI) from two years prior (So 2025 determinations are made using tax-year 2023 income). For 2025, IRMAA surcharges begin for individuals with income above $106,000 a year and couples with income above $212,000 a year. From there, the IRMAA bracket rates increase in tiers. Unlike income tax brackets, IRMAA brackets are not progressive. Once a person’s (or couple’s) income reaches the next bracket threshold, they must pay that bracket’s monthly surcharge.
How Does My Client Know if They Are Subject to the IRMAA Surcharge?
The Social Security Administration will notify your client of IRMAA surcharges for the coming year. Many savers have IRMAA deducted directly from their Social Security benefit, though savers may also pay the fee directly to the Social Security Administration.
How Are IRMAA Rates Set?
Each year, the Centers for Medicare & Medicaid Services (CMS) adjusts the IRMAA brackets based on the percentage movement of the Consumer Price Index. They may also adjust the surcharges themselves, which is the additional amount a saver will pay at each bracket level, based on the experience and needs of the Medicare program. The Social Security Administration (SSA) then announces the updated IRMAA brackets and surcharge rates for the upcoming year in the fall.
Has IRMAA Increased Since its Establishment in 2003?
Yes. Historically, IRMAA surcharges tend to increase each year. For example, look at Medicare Part B surcharges. Since 2019, IRMAA surcharges have risen at an annual compounded rate of 7.1% for the lowest IRMAA bracket and 7.3% for the highest IRMAA bracket. This comes on top of a 9.9% annual compounded rate of growth for the Medicare Part B premium savers pay in addition to any IRMAA surcharges.
It is likely this trend will continue for the reasons outlined below.
Does IRMAA Impact My Client’s Legislative Risk?
Yes, absolutely. So what is Legislative Risk, and how does IRMAA fit in?
Oftentimes, advisors are focused on helping their clients address Tax Risk in retirement. Tax risk is the risk that a person’s taxes will be higher in retirement than planned, leaving them with less income to spend because more is going to the IRS. Tax risk is an important area to address in retirement planning.
But to protect clients from more complete risks in retirement, we need to look beyond Tax Risk to address Legislative Risk as well. Legislative Risk is the risk that Washington changes the rules, and those rule changes negatively impact a saver’s retirement approach. Legislative Risk can include changes that impact retirement vehicles, like 401(k)s and IRAs; changes that impact the structure of taxation (what is taxed, when it is taxed, who it is taxed for); and changes that impact other government methods of generating revenue, like fees and surcharges.
While IRMAA surcharges are not technically a tax, they are absolutely a fee that can reduce the spendable income a saver can access (since more money must be paid to the government in the form of surcharges).
IRMAA fees are particularly susceptible to legislative risk since they can change every year. A client can not predict what they will pay in IRMAA one, five, or even 10 years in the future. As mentioned above, every year, the government can adjust both the brackets for inflation (based on the CPI) and the fee itself based on experience and the funding needs of Medicare.
So What Lies Ahead for IRMAA?
Unfortunately for our clients, there’s a good chance IRMAA surcharges will continue to rise.
We know the Medicare program will require significantly more funding in the years ahead. The Centers for Medicare and Medicaid Services (CMS) projects that through 2032, the government’s Medicare spending will grow at an average of 7.6% annually. The government will require additional revenue to meet this growth in outlays.
Interestingly, the 2024 Medicare Trustees Report provides some insight into where IRMAA surcharges could be headed – and why our clients may want to prepare today. The report notes that the Medicare Part A trust fund is expected to experience a significant shortfall over the next 10 years. However, the report also notes that the Medicare Parts B and D trust funds are NOT expected to experience a shortfall over this period.
On the surface, this sounds like good news for IRMAA and our clients. However, it obscures an important point. The report acknowledges that our government will experience rising costs for the Part B and Part D programs. But the Trustees feel confident the trust fund will not experience a shortfall because they can raise premiums and cost-sharing measures (i.e., IRMAA surcharges). In short, the thing that will keep the trust fund solvent is a consistent rise in the costs paid by American savers. In fact, the Trustees project Medicare premiums and surcharges over the next decade will amount to approximately 25% of a saver’s overall Social Security benefit.
How Can You Minimize IRMAA for Your Clients?
As financial professionals, it’s important to understand IRMAA and help communicate its legislative risk to our clients.
This discussion becomes particularly important as savers consider Roth conversions. The reason is twofold:
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First, over time, a Roth conversion can help a saver lower their MAGI and, therefore, their IRMAA surcharges. For the purposes of IRMAA, the SSA calculates a saver’s MAGI based on taxable income from 401(k)s, IRAs, working income, and the taxable portion of their Social Security benefit. However, income from Roth accounts do not count toward MAGI for the IRMAA calculation. By accessing retirement funds from a Roth account in the future, your client can potentially lower or eliminate their IRMAA surcharges.
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Second, IRMAA is an important consideration as you structure a client’s Roth conversion. As we know, clients often like to spread out a Roth conversion over a number of years to avoid an inflated tax bill in a given year. A true Roth conversion analysis must take into account three distinct impacts:
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The total taxes and fees expected to be paid if a saver keeps the IRA versus converting the IRA to a Roth. This is the analysis that helps the client decide if a Roth conversion makes sense in their situation.
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Once a client has made the decision to convert, we must analyze two areas to determine the optimal conversion pattern for that client:
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First, Tax Drift. If the additional income from a conversion pushes a saver into a higher tax bracket for a given year, the portion of the converted funds in that higher bracket will have a higher tax responsibility.
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Second, IRMAA Drift. If the additional income from the conversion pushes the saver into a higher IRMAA bracket, they could pay more in fees during the conversion.
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By analyzing the potential Tax & IRMAA drift for a client – and weighing it against a client’s concerns about where taxes are heading and when – we can help optimize the Roth conversion pattern, minimizing not only lifetime taxes in retirement but also the total taxes and fees our clients pay while converting.
How Can I Talk to My Clients About IRMAA?
IRMAA is a topic well-suited for your seminars, webinars, email campaigns, and social media outreach. Because many savers are not aware of the IRMAA surcharges until notified by the government, it is a great topic for client education and lead generation.
For savers impacted by IRMAA surcharges, your expertise will help them better plan and allocate their retirement assets. And even savers who are not currently subject to IRMAA surcharges will be better prepared for the legislative changes that could lie ahead.
Looking for more information on IRMAA? Below are some resources to help (and where I’ve sourced the information for this post):
2025 IRMAA brackets: www.medicare,gov/basics/costs
Historical Year-by-Year IRMAA brackets and rates: www.cms.gov/medicare/payment/medicare-advantage-rates-statistics/announcements-and-documents
CMS’s “National Health Expenditure Projections 2023-2032:” www.cms.gov/files/document/nhe-projections-forecast-summary.pdf
2024 Annual CMS Trustee Report: www.cms.gov/oact/tr/2024
About the Author
Becky helps your clients outsmart Washington and take control of their retirement. Making the complex simple and meaningful? It’s all in a day's work.
