Navigating IRMAA

If you are transitioning into or navigating retirement, a single transaction—like selling an appreciated stock portfolio, selling a concentrated equity position, or disposing of a property—can push you past traditional Medicare premiums and into IRMAA (Income-Related Monthly Adjustment Amount). This triggers substantial surcharges on your healthcare coverage two years later due to Medicare's standard two-year lookback mechanism.

The Mechanics of the IRMAA Cliff

Unlike the progressive brackets of the U.S. federal income tax system, where only the dollars exceeding a threshold are taxed at a higher rate, IRMAA functions as a strict "cliff penalty." Crossing a threshold by even one dollar subjects you to the full premium surcharge across your entire plan for that entire calendar year.

For example, your current premium assessments rely on your tax documentation from two years prior. For the 2026 tax year thresholds, the structural cliffs begin at relatively modest levels:

The Stacking Effect: Fixed vs. Movable Income

The primary driver of an IRMAA surprise is the practice of "stacking" discretionary income on top of non-negotiable income floors. When evaluating a capital gain event, you must first construct your absolute income baseline: 

• Fixed Income Floors: Social Security benefits, corporate pensions, and Required Minimum Distributions (RMDs) from traditional IRAs or 401(k)s. These provide the foundation of your annual MAGI.
• The Movable Blocks: Discretionary choices, such as executing a Roth conversion or harvesting capital gains

If your fixed retirement income sits at $180,000 for a married couple, you remain safely below the $218,000 baseline threshold. However, if you layer a $100,000 long-term capital gain from a stock sale on top of that floor, your MAGI jumps to $280,000. This single action clears Tier 1 entirely and lands you in Tier 2, increasing your combined household Medicare premiums by thousands of dollars two years down the line.

Strategic Countermeasures & Financial Planning Levers

From a proactive wealth management perspective, you can deploy several planning levers to mitigate or completely bypass these surcharges:

• Installment Sales: If you are offloading a highly appreciated business asset or private real estate, utilize an installment sale to spread the capital gains over multiple tax years, staying beneath critical IRMAA tiers. 
• Tax-Loss Harvesting: Actively offset your large capital gains by selling underperforming assets within taxable accounts before December 31st  to depress your aggregate MAGI.
• Asset Location Optimization: Focus on generating future capital gains within tax-advantaged accounts (like Roth IRAs), which do not impact MAGI upon distribution, while holding yield-heavy or capital-gain-distributing mutual funds outside of standard taxable accounts.
• Qualified Charitable Distributions (QCDs): For individuals age 70½ or older, directing up to $105,000+ of your RMD directly to a qualified charity lowers your baseline income floor. This carves out "tax runway" to absorb capital gains without triggering an IRMAA cliff. 
• File Form SSA-44: If your income spike was caused by a specific, legally recognized "Life-Changing Event" (such as retirement, work reduction, or the death of a spouse), you can file an appeal using Social Security Administration Form SSA-44 to request that your premiums be calculated using your current, lower income rather than the historic two-year lookback data.

As you near age 65 and have continued retirement conversations with your advisor, be mindful of the impacts income can have on your Medicare premiums. It’s best to start planning for this well before turning 65. 

We provide the information in this newsletter for general guidance only. It does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, investment, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, expressed or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

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