tax savings retirement
tax savings retirement
tax savings retirement

What Types of Income is IRMAA Based On? How to Avoid the Medicare Surcharge

Understanding the type of income that counts towards the IRMAA calculation is important, because avoiding IRMAA can save you hundreds of dollars per month on each spouse’s monthly Medicare bill.

IRMAA, or the income related monthly adjustment amount, is a surcharge to your monthly Medicare premium that is based on your income. The impact of the surcharge varies and is dependent on your income. The exact cost will vary each year, but for example in 2022 if you are single and your household income was between $142,000 and $170,000 in 2020 you would pay an additional $442 per month for your Medicare part B!

chart showing how medicare costs rise based on your income due to roth conversions

What Type of Income Contributes to IRMAA?

IRMAA is based off of what is called your Modified Adjusted Gross Income, or MAGI.

This can be confusing to calculate or find because it is not a specific line item on your tax return.

MAGI is the sum of all your income that is subject to tax – the most common sources for this for retirees is IRA withdrawals, capital gains, dividends, interest from CDs, and the taxable portion of your social security. This total is also known as your Adjusted Gross Income, or AGI and is a line item on your annual tax return.

Then add in the total of your non-taxable interest – This is usually any municipal bond income. The total of your AGI, plus non-taxable interest, is your MAGI.


1040 tax form showing how MAGI for IRMAA is calculated. Add line 2a to your AGI
This is a slide from a recent webinar we did. “How to do an annual tax review”


What Type of Income Doesn’t Count Towards IRMAA?

Just as important for retirees who are trying to avoid the IRMAA surcharge is understanding what types of income does not contribute to IRMAA.

The big one is withdrawals from Roth IRAs. Regardless of how much you take out from Roth IRAs, it is not taxable.

If you are like most Americans and a significant portion of your savings is in pre-tax retirement accounts like 401(k)s and traditional IRAs. Developing a plan to convert some of those assets to Roth accounts early in retirement can have huge benefits and help you avoid IRMAA in the future.

We help our clients develop Roth conversion plans, and tax efficient withdrawal plans in retirement to help insure their income in retirement does not unnecessarily trigger IRMAA, or any other added tax burdens in retirement.

While this applies to just about anyone. We find that those with $700,000 or more in pre-tax retirement accounts in particular can save a significant amount on taxes in their retirement with a proper plan.


If you’d like to see how we can help you create a plan to save on taxes in your retirement, please reach out. Click below for more:

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