Understand the Expenses of Medicare and How Part B and Part D Cost is Based on Your MAGI: 

Slide 1: Title: Medicare Premiums & Your Income.

In our financial planning series, we’ve covered many important topics, but today we are talking about a very significant and often misunderstood retirement expenses: Medicare Premiums.

Most people know about Medicare, but very few truly understand that their income can dramatically change their costs.

Slide 2: Title: Medicare Parts: Understanding Your Costs

Let's start with a quick review of the main parts of Medicare and their cost structure, focusing on the premiums.

• Part A, or Hospital Insurance: This is usually free for most people because you, or your spouse, paid Medicare taxes while working for at least ten years.

• Part B, or Medical Insurance: This is the part that covers doctor visits and outpatient care. It has a monthly premium, and this is the main focus of our lesson.

• Part D, or Prescription Drug Coverage: This also comes with a monthly premium that varies based on your insurance plan.

The key takeaway is Your income directly impacts the premiums for Part B and Part D. If you want to control your total Medicare costs in retirement, you must pay attention to how your income is structured. 

Slide 3: Title: The 'Two-Year Lookback' Rule

Here is an important concept that catches most retirees completely off guard: The 'Two-Year Lookback' Rule.

Medicare does not look at your current income to set your premiums. They use a two-year delay.

This means for example that a 2025 Medicare premium is actually based on your Modified Adjusted Gross Income, or MAGI, from your 2023 tax return.

Think about that for a moment. The financial decisions you make today—like selling a large stock holding or doing a Roth conversion—will not affect your Medicare premiums until two years from now. This delay is why proactive, long-term tax and retirement planning is essential to avoid costly surprises.

So, what is this Modified Adjusted Gross Income. MAGI adds back to your AGI some tax-exempt interest such as municipal bonds, savings bonds interest, etc.).

Slide 4: Title: "What is IRMAA?" The High-Income Surcharge

This two-year lookback is what brings us to a financial threat to a high-income retiree: IRMAA.

IRMAA is the stands for the Income-Related Monthly Adjustment Amount. Think of it as a mandatory, high-income surcharge (or tax) that is added to your standard premiums for both Medicare Part B and Part D.

IRMAA is a real financial threat because it acts like a 'tax cliff,' not a tax bracket. You could be just one dollar over an income threshold and be forced to pay the full, additional surcharge for the entire year. This single dollar of extra income could easily cost you hundreds or even thousands of dollars in extra premiums. That's why we need to know exactly where these cliffs are.

Slide 5: IRMAA Part B and Part D premiums for 2025 Chart

This chart is the heart of the lesson. It shows the 2025 IRMAA tiers, which are based on your 2023 Modified Adjusted Gross Income, or MAGI.

• Look at the first row: If you file as an Individual, and your 2023 MAGI was $106,000 or less, or as a Married couple filing Jointly, and your MAGI was $212,000 or less, you pay the standard Part B premium and no Part D surcharge. This is your target zone.

• Now look at the first IRMAA cliff: If your income goes from $106,000 to just $106,001 as an individual, you jump into the second tier. Your Part B monthly premium goes from the standard rate of $185.00 to a total of $259.00 per person. Plus, you now have a Part D surcharge of $13.70 per person added to your plan premium. That seemingly small extra dollar of income could cost you over a thousand dollars for the year!

• Notice the different limits: The income limits for married couples filing jointly are exactly double the individual limits for the first four tiers, which provides some relief for joint filers, but the financial risk of hitting a cliff is the same for everyone."

And at the highest income levels, the IRMAA surcharges are substantial. For an individual, Part B alone can reach as high as $628.90 per month, per person. Clearly, proactively managing your income is not optional—it is required to manage your overall retirement costs.

Slide 6: Title: IRMAA Part B and Part D premiums for 2026 Chart

See how inflation change the income tiers.

Go over the new tiers for 2026

Part B for 2026 has increased to $202 from $185

This table shows the IRMAA tiers for individual (single) fliers

There are links to the 2026 tires in the lesson resource section.

Slide 7: Title: Proactive Planning to Avoid IRMAA.

The news is that because you know about the two-year lookback rule and the IRMAA cliffs, you can plan to avoid them. This is where the proactive tax planning we've discussed becomes important.

There are three key strategies to manage your MAGI and stay below those IRMAA thresholds:

1.     Manage Capital Gains and Roth Conversions: A large, one-time spike in income from selling an appreciated asset or completing a large Roth conversion in a single year can easily push you into a higher IRMAA bracket two years later. You need to spread these transactions out over multiple years to smooth your income.

2.     Use Qualified Charitable Distributions (QCDs): For those over age 70 and a half, a QCD is a direct transfer from your IRA to a qualified charity. This money is excluded from your Adjusted Gross Income, and therefore, it lowers your MAGI. This is an effective tools to reduce your MAGI and potentially avoid IRMAA. QCDs can court as your RMDs.

3.     Strategically Time Your Income Sources: Coordinate your income from RMDs, pensions, and taxable accounts. By carefully calculating and managing the taxable income you take out each year, you can stay safely below the IRMAA cliffs. You can also use strategies like delaying your Social Security or converting funds to a Roth account during lower-income years before you take RMDs. If you are doing large Roth conversions, if possible, start before age 63.

Slide 8: Putting it all together

This is where all the pieces of our course start to fit together.

Smart tax planning, which we covered in our earlier lesson, is not just about lowering your current tax bill; it is also about strategically lowering your MAGI to avoid thousands of dollars in annual Medicare surcharges.

Please remember that all of these premium amounts, including the IRMAA thresholds, may also be adjusted for inflation each year.

For 2026, the Medicare Part B deductible is $283, meaning beneficiaries pay this amount out-of-pocket before Original Medicare starts covering most medical services

In our next slides, we will look at the projected 2026 premiums that you will pay in 2028, and I also have a spreadsheet tool video that you may use to help you calculate your personal IRMAA costs.

Next slides: Projected 2026 premiums and a spreadsheet tool for calculating IRMAA costs.

Slide 8:  IRMAA Tiers 2026

 See chart

Slide 9:  Intro to sample spreadsheet to help you plan Roth conversions

There is an additional video on using the spreadsheet in this lesson. It is for 2026

There are programs and/or financial planners that will help with calculating your Roth conversion and possible IRMAA charges

Slide 10: Title: Your Action Plan

In summary, this is your immediate action plan based on what we've learned today:

1.     Check Your History: Pull out your 2024 tax return to find your Modified Adjusted Gross Income (MAGI). That number determines your Medicare premiums for 2026.

2.     Know Your Target: Use the chart on the previous slide to identify the IRMAA 'cliff' you need to stay under for the current year, and for all future years.

3.     Plan Ahead: Estimate your MAGI in future years and use resources or certified financial professionals to help you determine your potential IRMAA surcharge.  Especially when anticipating a large financial event (like the sale of a business, exercising stock options, or those Roth conversions).

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