As you plan for retirement, a logical question that often comes up:, “When do I apply for Medicare, and how do I know if I’m going to have to pay that additional IRMAA premium?”
The good news? Medicare rules are manageable once you understand them.
The confusing part is that people often mix up two completely different concepts:
IRMAA surcharges (higher premiums based on income)
Late enrollment penalties (extra costs for signing up late)
Let’s walk through both so you know what to expect, and how to avoid paying more than necessary.
Understanding Basic Medicare
Most people become eligible for Medicare at age 65.
To be eligible for Medicare, you must:
Be age 65 or older
Be a US citizen or permanent legal resident that has lived in the US for 5+ years
Possibly have early eligibility with certain disabilities, ALS, or end-stage renal disease 1 (Medicare.gov)
When you enroll, Medicare typically begins with two parts:
Part A (Hospital Insurance)
Covers inpatient hospital care and is generally premium-free for most people. 2 (Medicare.gov)Part B (Medical Insurance)
Covers doctor visits and outpatient services. Premiums are based on income, and can change every year. 3 (Medicare.gov)
Medicare charges an increasing scale of your income based on the Income-Related Monthly Adjustment Amount (IRMAA). These are surcharges based on your “prior-prior year income” (tax return from two years earlier).
That seems like a doozy, but it makes sense. Right now in 2026, the IRS still does not have everyone’s 2025 tax returns. But they basically have everyone’s 2024 tax returns. So if you turn 65 in 2026, your 2026 Medicare premiums will be based on your 2024 tax returns.
NOTE: You might love your municipal bonds because they might be federally tax-free, or may even be state tax-free, but that income is added back with both you MAGI and when you calculate the Provisional Income for Social Security!
Since Medicare is largely subsidized by taxes, the IRS requires higher earners to pay more of their medical costs. To determine this, Medicare looks at your Modified Adjusted Gross Income (MAGI). MAGI starts with the Adjusted Gross Income (AGI) reported on your tax return and includes certain additional income sources, such as tax-exempt municipal bond interest, the non-taxable portion of Social Security benefits, and certain foreign earned income exclusions.4 (ssa.gov)
After calculating your prior-prior year MAGI (meaning your 2024 income for 2026 Medicare premiums), use the IRMAA chart to identify which income tier you fall into and determine your Part B premium:
We like to say: the more income you are blessed to have in America, the more you are blessed to pay in Medicare premiums.
Keep in mind, that many common retirement transactions count toward IRMAA income, including:
IRA withdrawals
Selling your home or an asset
Taking your Required Minimum Distributions (RMD’s)
Roth conversions
4 (SSA.gov)
The IRS refers to these premium increases as a surcharge. While they aren’t technically a tax, they can certainly feel that way, since higher income results in higher Medicare premiums.I
That’s completely separate from Medicare late enrollment penalties.
Medicare Penalties
As noted earlier, you’re often eligible for Medicare at age 65. If you do not enroll into Medicare for your initial 7-month enrollment period, and do not have qualifying health insurance, you could face Medicare late enrollment penalties. (This enrollment period begins three months before you turn 65 and extends through the three months after your birth month.) The late-enrollment penalty is a 10% increase on your Part B premium of $202.90/month for each 12-month period that you should have had Part B but didn't. That’s a steep increase, and that increase lasts your entire life.
Enrolling in Part B has its own rules. I highly encourage all our clients to work with our Medicare team to make sure that Medicare is set up correctly.
Earlier I noted you become eligible to start enrolling in Medicare at 65. You don’t necessarily have to if you have qualifying health insurance. Typically, qualifying health insurance refers to employer sponsored coverage from either your or your spouse’s employer , (If the plan has 20 or more employees). If you have this qualifying health insurance, you can defer claiming Medicare. Although, once your insurance coverage terminates, you only get an 8-month window to enroll for Medicare, so don’t delay!
Can I get out of that surcharge?
This is an exact question someone asked. It’s a great question, and thankfully the answer might be yes! 5 (SSA.gov)
The IRS allows someone an exemption from the surcharge who “experienced a life-changing event that [had] reduced your IRMAA”.
Life-changing events include:
Marriage
Divorce
Death of a spouse
Work Reduction
Work Stoppage
Loss of priority or income
WAIT!!!
Did you catch that?
Work stoppage or reduction of work counts! AKA RETIREMENT!
When you retire, typically, you have a huge loss of income. This is an optimum time to file the SSA-44 form. It’s a relatively straightforward form, and we’ve helped many clients navigate the process.
This might also count if you sell your home, or sell a largely appreciated stock (especially when that stock was paying dividends).
I would say that’s a pretty big benefit!
This absolutely is something you should consult with a tax professional.
In my experience, this benefit often goes unused simply because most people don’t know the rule exists.
Good thing you read this.
What’s next?
It’s safe to say, there is a lot that goes into planning for retirement. Knowing how your Medicare premiums will affect your retirement is only one piece of the puzzle. Coordinating your retirement income and determining when and where to take withdrawals (whether from 401(k)s, IRAs, Roth IRAs, or non-qualified brokerage accounts) while evaluating Social Security claiming strategies and managing both federal tax brackets and IRMAA thresholds can be a lot to navigate. These decisions should not be made in a silo. All of these decisions should be coordinated into one comprehensive strategy to help make the most of retirement.
That's what real financial planning actually is. Real financial planning is not only about investments. It’s not a product recommendation. A panoramic view of your plan should be built around your specific income, your specific timeline, and the outcomes that matter most to you.
If you have questions on your retirement planning, income planning, and tax strategies, give our office call. Our office specializes in retirement planning, income planning, and tax strategies for people who want to get this right. We are here to provide you with a second opinion and help you move forward with clarity and confidence. Phone: (714) 415-2680
- https://www.medicare.gov/basics/get-started-with-medicare/before-65
- https://www.medicare.gov/providers-services/original-medicare/part-a
- https://www.medicare.gov/providers-services/original-medicare/part-b
- https://www.ssa.gov/benefits/medicare/medicare-premiums.html
- https://www.ssa.gov/medicare/lower-irmaa