IRMAA (Medicare Surcharge) Calculation

How Medicare Part B and Part D premiums increase based on income from 2 years prior

How it works

IRMAA (Income-Related Monthly Adjustment Amount) is a surcharge added to Medicare Part B and Part D premiums based on your Modified Adjusted Gross Income (MAGI) from 2 years prior. For example, your 2025 income determines your 2027 Medicare premiums. This 2-year lookback means A Roth conversion in the current year will affect Medicare premiums two years later.

  1. 1. Calculate MAGI

    Determine Modified Adjusted Gross Income for IRMAA purposes (IRC §1839(i)(4))

    MAGI = AGI + Tax-Exempt Interest (1040 Line 2a)
    Example: AGI $200,000 + Tax-Exempt Interest $15,000 = MAGI $215,000. Stratum does not model the foreign-earned-income exclusion (rare for retirees).

  2. 2. Determine IRMAA Tier

    Find which income bracket applies (2-year lookback)

    2024 IRMAA Tiers (Married Filing Jointly) — illustrative; future projection years use thresholds indexed at the inflation rate assumption:
Tier 0: ≤$206,000 → No surcharge
Tier 1: $206,001-$258,000 → $840/year
Tier 2: $258,001-$322,000 → $2,040/year
Tier 3: $322,001-$386,000 → $3,240/year
Tier 4: $386,001-$750,000 → $4,440/year
Tier 5: >$750,000 → $5,040/year
    Example: 2025 MAGI of $260,000 (MFJ) → Tier 2 in 2027 → $2,040/year added to Medicare premiums

  3. 3. Calculate IRMAA Headroom

    Determine how much income headroom before hitting next tier

    IRMAA Headroom = Target Threshold - Current MAGI
    Example: Current MAGI: $245,000 Target: Stay below Tier 1 ($258,000) Headroom: $258,000 - $245,000 = $13,000 Can convert up to $13,000 without triggering IRMAA surcharge

  4. 4. Apply to Roth Conversions

    Conversion increases MAGI in conversion year, affects Medicare 2 years later

    Effective Headroom = Min(Tax Bracket Headroom, IRMAA Headroom)
Suggested Conversion = Effective Headroom - $1
    Example: Tax bracket headroom: $45,000 (can fill to 22% bracket) IRMAA headroom: $13,000 (stay below $258k) Effective headroom: $13,000 (IRMAA is limiting) Suggested conversion: $12,999

Real-world context

What is IRMAA?

IRMAA is a surcharge added to your Medicare Part B (medical insurance) and Part D (prescription drug) premiums if your income exceeds certain thresholds. Higher-income beneficiaries pay more for Medicare coverage. The surcharge can add $840 to $5,040+ per year to your premiums, depending on your income tier.

IRS reference: Medicare.gov IRMAA Information

The 2-Year Lookback

IRMAA uses your Modified Adjusted Gross Income (MAGI) from 2 years prior to determine your current year Medicare premiums. This means a large Roth conversion in 2025 won't affect your Medicare premiums until 2027-2028. Planning conversions with IRMAA in mind helps avoid unexpected premium increases.

MAGI vs AGI

For IRMAA purposes, MAGI = AGI + tax-exempt interest (IRC §1839(i)(4)). Municipal bond interest — even though not subject to federal income tax — still counts toward MAGI and can push clients into a higher IRMAA tier. Stratum threads tax-exempt interest (1040 Line 2a) through both the MAGI calculation and the Social Security provisional income calculation (IRC §86). The foreign-earned-income exclusion is a separate MAGI add-back that Stratum does not model.

Strategic Planning Around IRMAA

Sometimes it makes sense to pay IRMAA surcharges to accomplish important planning goals (such as large Roth conversions). Other times, spreading conversions over multiple years to stay below IRMAA thresholds is optimal. The key is making an informed decision about whether the long-term tax savings from a conversion outweigh the 1-2 years of IRMAA surcharges.

What drives the result

Enable IRMAA Limit
Roth Conversion Strategy → Configuration

When enabled, conversion suggestions respect IRMAA thresholds in addition to tax brackets. System uses the lesser of tax bracket headroom and IRMAA headroom to prevent triggering Medicare surcharges.

Without IRMAA limit: Convert $45k to fill 22% bracket With IRMAA limit ($258k): Convert only $13k to stay below threshold

IRMAA Threshold
Roth Conversion Strategy → IRMAA Configuration

Selects which IRMAA tier to stay below. Each tier represents a bracket threshold where Medicare surcharges increase. Lower thresholds = more conservative (avoid all surcharges), higher thresholds = more aggressive (willing to pay some surcharges).

Select $258,000 to avoid the first surcharge tier ($840/year) Select $322,000 to avoid the second tier ($2,040/year)

Roth Conversion Amount
Roth Conversion Strategy → Manual Mode

Conversion amount is added to your MAGI in the conversion year. This increased MAGI determines Medicare premiums 2 years later. Large conversions can push you into higher IRMAA tiers temporarily.

Base MAGI: $245k, Convert $50k → MAGI becomes $295k Result: Tier 2 surcharge ($2,040/year) in years +2 and +3

Assumptions

  • MAGI = AGI + tax-exempt interest (per IRC §1839(i)(4))
  • IRMAA brackets indexed annually for inflation (~2.5%)
  • 2-year lookback applies (conversion year income → Medicare premiums 2 years later)
  • Only considers income thresholds, not life events (marriage, death, etc.) that allow appeals
  • Surcharge amounts are estimates (Part B + Part D combined)
  • Widow's penalty interaction: when the first spouse dies, Single IRMAA thresholds apply from the following year, and the 2-year look-back can pull in income earned under MFJ filing status and assess it against Single thresholds -- see the Widow's Penalty help for full detail

Limitations

  • Does not model foreign-earned-income exclusion or other rare MAGI adjustments
  • Does not account for IRMAA appeals process for life-changing events (including spouse death -- the survivor may appeal to use current-year income rather than the 2-year lookback)
  • Does not model the initial Medicare enrollment decision (age 65+ assumption)
  • Surcharge amounts approximate (actual amounts vary slightly by year and plan)

Related

This page explains how Stratum models this calculation. It is educational material for financial professionals, not tax or legal advice, and tax law changes. Verify current figures against primary IRS sources before relying on them with a client.