By Michael Henley, CFP®, CPWA®, CRPC®, RMA®

Retirement is a time when many anticipate enjoying the fruits of their hard work over the years. However, wealthy families are often surprised to learn they are subject to what is an unexpected expense: additional Medicare premiums. If not properly planned for, these extra premiums can disrupt even the most carefully crafted Family Wealth Plans in retirement.

While these surcharges may not be entirely avoidable, proactively managing income and understanding the implications of Medicare surcharges can help individuals avoid overpaying for the cost of Medicare in their golden years.  

What Is the Medicare IRMAA surcharge?

Medicare premium surcharges, known as Income-Related Monthly Adjustment Amounts (IRMAA), can significantly affect retirement income for wealthy individuals and families. These surcharges apply to Medicare Part B (medical insurance) and Part D (prescription drug coverage) premiums when a Medicare beneficiary’s Modified Adjusted Gross Income (MAGI) exceeds certain thresholds.

2025 Income Thresholds & Premium Levels

The income thresholds for IRMAA surcharges are subject to change each year. In 2025, IRMAA surcharges begin at a modified adjusted gross income (MAGI) of:

  • $106,000 for individuals
  • $212,000 for married couples filing jointly

If your income exceeds these thresholds, you will pay higher premiums each month, with rates scaling up based on income. In addition, to make matters more confusing, the Medicare income brackets do not match up with Federal marginal income tax brackets! 

Here’s how the monthly costs stack up in 2025:

Part B Premiums:

  • Standard Premium: $185.00/month (for those below IRMAA thresholds)
  • Highest Premium: Up to $552.10/month (for those with the highest income level)

Part D Premiums:

  • Additional IRMAA Premiums: Up to $83.80/month on top of your plan’s premium

Depending on your income, these surcharges can result in substantial annual costs, cutting into retirement cash flow and impacting overall wealth plans.

Why IRMAA Planning Matters 

The additional costs associated with IRMAA can add up, especially over a 25 to 30-year retirement timeframe. If higher premiums persist over time, the impact on retirement income can be significant:

  1. Potential for Unanticipated Costs: IRMAA is based on your income from two years prior, and re-evaluated each and every year. A one-time spike in income (such as that from a larger than usual Roth conversion, the sale of a property, or a final bonus) can lead to elevated premiums for that one year. 
  2. Different Types of Income are included in the Medicare Calculation: The income that is used to calculate your MAGI for Medicare purposes includes income that is otherwise non-taxable, such as interest paid from Federally tax-free municipal bonds. 
  3. Impact on Cash Flow Planning: For those with a well-structured retirement and wealth plan, unanticipated surcharges can disrupt years of otherwise meticulous planning. These surcharges can add up to thousands of dollars annually, which might otherwise be allocated toward travel, hobbies, or everyday living costs.  

Strategies to Manage Medicare Premium Surcharges

While IRMAA is an unavoidable part of Medicare for high-income retirees, proactive planning can help reduce its impact. Here are a few strategies to consider:

  1. Consider Larger Roth Conversions in Years Prior to Age 63: In retirement, withdrawals from pre-tax accounts like Traditional IRAs or 401(k)s increase your income and Medicare tier. Roth conversions (the process of shifting funds from pre-tax accounts to Roth accounts) during low-income years reduce future Required Minimum Distributions (RMDs) from traditional retirement accounts, lowering your tax bill in retirement. However, since your Medicare costs are calculated from your tax return 2 years prior to beginning Medicare at age 65, completing Roth conversions after retirement and prior to age 63 can be especially appealing; when Medicare premiums are a non-issue. 
  2. Plan Ahead for a High-Income Year: It is important to work with your wealth advisor to plan for any significant income events, such as the sale of a property or the sale of appreciated stock. If possible, it could be beneficial to spread out these sales over several years to reduce annual tax consequences and spread out the tax over multiple years. 
  3. Appeal for IRMAA Adjustments After Major Life Events: Life events such as retirement, divorce, or the death of a spouse can significantly reduce your income. Medicare allows you to appeal your IRMAA if your income drops due to certain qualifying events. This appeal process can lower your monthly premiums based on your current income rather than the two-year-old income figure Medicare typically uses. Consult with your wealth or tax advisor to assist with the appeals process.  

We Are Here to Help

Medicare premium surcharges are often overlooked when planning for retirement, but these costs can substantially affect long-term financial health if not properly accounted for.

At Brandywine Oak Private Wealth, we are committed to providing thoughtful, objective guidance tailored to your unique needs. We are here to help you navigate life’s financial decisions with confidence and clarity.

If the above insights are intriguing and you would like to learn more about how we can assist you with your own unique objectives, contact us at (484) 785-0050, email Contact@BrandywineOak.com, or get started online now. And if you are curious about what our clients have to say about working with us, visit our client testimonials page to hear their stories.

About Michael

Michael Henley is the Founder and CEO of Brandywine Oak Private Wealth, a private wealth management and registered independent advisory firm headquartered in Kennett Square, PA. Over the course of his 20-year career, Michael has been dedicated to helping wealthy individuals and families plan and manage all aspects of their finances and investments. With a passion for helping others look behind the curtain and understand the complex world of finance, he develops close relationships with clients as he helps them progress toward their financial goals. Michael loves to provide clarity and alleviate financial anxiety, help prevent families from overpaying in taxes, and give wealthy families permission to enjoy their life savings. He says, “No work is more gratifying than giving families outcomes to what matters most to them.”

Michael holds the CERTIFIED FINANCIAL PLANNER®, Certified Private Wealth Advisor®, Chartered Retirement Planning Counselor℠, and Retirement Management Advisor® designations. Residing in Chadds Ford, PA, with his two children, he enjoys outdoor activities, particularly maintaining trails on his property, hiking with his dogs, and being an actively engaged dad, always taking his kids everywhere. Michael’s latest hobby is tennis, and he recently started ice skating to join his daughter Savannah. He can also be found moving logs to the firepit with his son Maverick on the tractor. Michael serves on the board of United Way of Southern Chester County and loves mentoring younger advisors. Great mentors helped him succeed, and he’s convinced that every leader needs to both have mentors and be a mentor. To learn more about Michael, connect with him on LinkedIn.

Brandywine Oak Private Wealth is a registered investment adviser. Registration does not imply a certain level of skill or training. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.