Many people approaching Medicare do not expect a premium that runs hundreds of dollars above the standard rate. You focused on the coverage questions, the plan options, the enrollment windows. The billing number that shows up in year one is a different kind of surprise altogether. For pre-retirees in Fresno and Clovis who have spent decades accumulating wealth, this is one of the more common financial shocks in early retirement and one of the least discussed before it happens. The surcharge is called IRMAA, the Income-Related Monthly Adjustment Amount. It is applied to Medicare Part B and Part D premiums based on your income, and for higher earners it can add a significant and recurring cost to every year of retirement.
IRMAA is calculated on a five-tier scale by the Social Security Administration using your Modified Adjusted Gross Income. In 2026 the surcharge begins when income exceeds $109,000 for individuals or $218,000 for couples filing jointly. At the top tier, Part B premiums alone reach $689.90 per month, compared to the standard rate of $202.90. Part D carries its own added surcharge on top of your existing drug plan premium. What people do not learn until it is already affecting them is the timing piece. Your 2026 Medicare premium is based on your 2024 federal tax return. The income you reported two years ago is what the SSA is pricing from right now, regardless of what your financial picture looks like today.
How IRMAA Is Calculated
The Social Security Administration determines your IRMAA tier by reviewing your Modified Adjusted Gross Income, which is your adjusted gross income plus any tax-exempt interest. That second piece is where many people get caught off guard. Municipal bond interest, which many investors think of as tax-exempt income, is added back into the MAGI calculation for Medicare purposes. The same applies to the taxable portion of Social Security benefits, capital gains from the sale of investments or real estate, required minimum distributions from IRAs and 401(k) accounts, and pension income. All of it counts. The five tiers in 2026 start at $109,000 for individuals and increase through $137,000, $173,000, $205,000, and $500,000, with a corresponding increase in monthly premiums at each level.
One of the more frustrating aspects of how IRMAA works is what is often called the cliff effect. IRMAA does not phase in gradually the way a marginal tax rate does. The moment your income crosses a tier threshold, the full surcharge for that bracket applies to your entire premium, not just the income above the line. A single retiree whose 2024 income was $109,001 pays the same 2026 surcharge as someone who earned $136,999 that year. That one extra dollar can trigger more than $1,100 in additional annual Medicare costs per person. For couples where both spouses are enrolled in Medicare Part B, that figure doubles. Understanding where the thresholds fall is an especially useful step a pre-retiree in Fresno or Clovis can take before their first year of enrollment.
Why This Catches Pre-Retirees Off Guard
IRMAA tends to arrive unexpectedly not because people missed something obvious, but because the two-year lookback creates a gap between what someone earned and what they are now paying. A strong final year of employment income, a business sale that closed before retirement, a year with elevated capital gains, or a large IRA distribution taken before a Roth conversion strategy was in place can each leave a retiree paying a premium tier that no longer reflects their current income. For many pre-retirees approaching 65 in Fresno and Clovis, the income picture at Medicare enrollment looks very different from what it was two years prior. That gap is exactly where IRMAA does its damage, and it is also exactly where planning ahead makes a measurable difference.
The income sources that feed into MAGI are worth knowing in detail. Wages and salary are obvious. Less obvious are required minimum distributions, which begin at age 73 and can push MAGI higher in ways that feel sudden when they were not planned for. Roth conversions, while valuable for long-term tax positioning, also increase MAGI in the year they are taken. A conversion made in 2026 will show up in a 2028 Medicare premium. Capital gains from selling a rental property, liquidating a concentrated stock position, or rebalancing a taxable investment account all count as well. Even interest from a municipal bond portfolio, widely considered tax-exempt, gets added back in. Each of these is a lever that can be managed with the right structure in place.
When You Can Appeal Your IRMAA Determination
If your income has dropped because of a qualifying life event, you are not required to keep paying the higher premium. The Social Security Administration has a formal process for requesting a new premium determination based on your current, reduced income rather than the return from two years prior. The request is made using Form SSA-44, the Medicare Income-Related Monthly Adjustment Amount Life-Changing Event form, available at ssa.gov. It can be submitted online through your My Social Security account, mailed to your local Social Security office, or delivered in person. The form asks you to identify the qualifying event, provide the date it occurred, and attach documentation showing both the event and its effect on your income.
The list of qualifying events covers the transitions that commonly occur around retirement. Full retirement from employment qualifies. So does a meaningful reduction in work hours or pay. The death of a spouse, divorce or annulment, loss of pension income from a former employer, and loss of income-producing property due to circumstances outside your control all qualify as well. For the majority of the pre-retirees and retirees we work with in Fresno and Clovis, stopping work is the trigger that typically applies. If you retired in 2024 or 2025 and your income dropped substantially, your current Medicare premium may be based on a figure that no longer reflects your situation. That is precisely what the SSA-44 process is designed to address.
Documentation requirements vary by event. For someone who retired, the SSA typically wants a copy of the tax return for the year income declined along with a letter from the former employer confirming the retirement date. If income dropped because of a spouse's death, a copy of the death certificate is required. For a divorce, the final decree serves as documentation. In each case, you are showing the SSA that a specific event occurred and that it reduced your income in a way that warrants a new calculation. Processing generally takes 30 to 90 days. If approved, the adjustment is often applied retroactively to the date of the qualifying event, which can mean a refund for premiums already paid at the higher rate.
Planning Around IRMAA Before You Reach Medicare
For anyone in Fresno or Clovis who is five to ten years away from Medicare eligibility, the key step you can take for IRMAA is begin planning before it applies. Because the SSA looks back two years, the income decisions made today directly shape the Medicare premiums paid in the future. A Roth conversion strategy executed thoughtfully over several years, keeping annual conversions below the tier thresholds, can significantly reduce the lifetime cost of Medicare premiums while also building tax-advantaged income for retirement. The same logic applies to capital gains management, distribution timing from retirement accounts, and the timing of when you begin collecting Social Security benefits.
The goal is not to avoid paying Medicare premiums. It is to avoid paying more than necessary because of income events that could have been structured differently. A single year of elevated income, even one that made complete sense at the time, can result in a surcharge that lasts twelve months. Two consecutive high-income years can mean two full years of elevated premiums. For people with substantial wealth approaching retirement, this is not a minor line item. It is a recurring planning variable with real dollar consequences year after year. The people we work with in Fresno and Clovis who model their MAGI across the five years before Medicare enrollment consistently end up in a better position than those who address it only after a notice arrives.
What to Do If You Received an IRMAA Notice
If you received an Initial IRMAA Determination letter from the Social Security Administration, you have options. If the determination appears to be based on incorrect income information, call the SSA directly at 800-772-1213 to report the error. If the income figure was accurate for that year but has since dropped because of a qualifying event, file Form SSA-44 as described above. If the determination is accurate and no qualifying event applies, you can still request a formal reconsideration, a Level 2 appeal reviewed by the SSA. If that is denied, you have the right to request a hearing with the Office of Medicare Hearings and Appeals within 60 days. Each step has options, and none of them require simply accepting a premium that no longer fits your situation.
It's important to understand is that receiving an IRMAA notice is not a final verdict. It is the beginning of a conversation. For pre-retirees and retirees in Fresno and Clovis who have worked carefully to build and preserve what they have, every recurring cost in retirement deserves the same attention as the investment decisions that created it. Medicare premiums respond to income, and income can be structured and planned over time. If you received a notice and want to understand your options, or if you want to review how your current income strategy will affect your costs before Medicare begins, we are glad to help you work through it. A conversation early enough in the planning process opens more options than one that comes after the fact.
If you are interested in learning more about how this fits into your retirement plan, please contact us today.
Frequently Asked Questions
What is IRMAA and why am I paying more for Medicare? IRMAA stands for Income-Related Monthly Adjustment Amount. It is a surcharge added to Medicare Part B and Part D premiums for people whose income exceeds a certain level. In 2026, the surcharge begins at $109,000 for individuals and $218,000 for couples filing jointly. The amount is based on your tax return from two years prior, which is why many retirees are surprised to find their current premium reflects income from a year that no longer represents their financial situation.
How do I appeal my IRMAA surcharge if my income has gone down? You file Form SSA-44, the Medicare Income-Related Monthly Adjustment Amount Life-Changing Event form, available at ssa.gov. The form requires you to identify a qualifying life event such as retirement, the death of a spouse, or a significant work reduction, along with documentation supporting the income change. If approved, the SSA adjusts your premium and may issue a refund for amounts already paid at the higher rate.
What income counts toward my IRMAA calculation? IRMAA is based on your Modified Adjusted Gross Income, which includes wages, retirement distributions, capital gains, taxable Social Security benefits, pension income, and tax-exempt interest from municipal bonds. The municipal bond interest addition surprises many retirees who consider that income tax-exempt. All of these sources combine to determine which IRMAA tier applies to your Medicare premium for the year.
Can a financial advisor in Fresno help me lower my Medicare premium? Yes. A financial advisor can help you model your MAGI across the years leading up to Medicare enrollment and identify strategies to manage which tier you land in. This includes timing Roth conversions, managing capital gains, and structuring required minimum distributions in a way that keeps your income below or within specific thresholds. At Legacy Finance in Fresno and Clovis, this kind of income planning is a standard part of how we prepare clients for retirement.
Does IRMAA change every year? Yes. IRMAA is recalculated annually based on your income from two years prior. The income thresholds are also adjusted each year for inflation. That means someone who paid a surcharge one year may not pay it the next if their income dropped, and someone who avoided it previously may begin paying if their income increased. This is why ongoing income planning in retirement matters, not just planning done once at the point of enrollment.
Commonwealth Financial Network® does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.