The Medicare IRMAA Trap
Most retirees are surprised to learn that Medicare Part B and Part D premiums are income-tested, and the income Medicare uses is from two years ago. That seemingly small detail has created a very expensive trap for a lot of good people.
Take Susan, age 68. In 2023 she sold a rental property she and her late husband had owned for decades. The sale created a $180,000 long-term capital gain. Susan was thrilled with the check, but she had no idea that gain on her 2023 tax return would determine her 2025 Medicare premiums. When the letter from Social Security arrived showing her new Part B premium jumping from $185 per month to $628 per month, she called our office. That single real estate sale added almost $10,700 to her Medicare premiums for 2025 alone, and the higher premiums will continue until her income drops back down on a future tax return.
The income thresholds that trigger IRMAA surcharges are not inflation-adjusted very aggressively, so more middle-class retirees get caught every year. For 2025, the first IRMAA tier starts at just $106,000 of modified adjusted gross income for a single filer or $212,000 for married filing jointly. Cross that line and your premiums can increase by up to 240% per person.
The good news is that most IRMAA hits are completely avoidable with a little planning. Roth conversions, charitable giving, tax-efficient withdrawal sequencing, and even the timing of Social Security can keep you under the cliffs. In Susan’s case, we were able to file a successful appeal because of a life-changing event (the death of her spouse), but the better answer would have been planning the sale and using charitable remainder trusts or installment sales to spread the gain over multiple years.
If you have a large IRA, a pending real estate sale, stock options, or any event that could create a spike in income, schedule a Medicare premium projection with us before you pull the trigger. Two hours of planning can easily save five figures in completely unnecessary Medicare premiums.
About Keystone Tax LLC
At Keystone Tax LLC in Eau Claire, Wisconsin, we specialize in retirement tax planning — helping clients reduce unnecessary taxes, maximize income, and build confidence for their financial future. To schedule a no-cost consultation, visit www.keystone-tax.com or call (715) 835-6022.
