What Colorado Retirees Should Know About Medicare IRMAA and Tax Planning

Medicare is one of those retirement topics that sounds simple until you get into the details.

You turn 65. You enroll in Medicare. You pay your premiums. Done, right?

Not exactly.

For many retirees, Medicare premiums are not just based on the Medicare plan they choose. They may also be affected by their income. And that is where IRMAA comes in.

IRMAA stands for Income-Related Monthly Adjustment Amount. In plain English, it is an additional Medicare premium that higher-income retirees may pay on top of their regular Part B and Part D premiums.

The surprise for many retirees is that Medicare generally looks at your income from two years ago. So if you recently retired, sold a business, exercised stock options, took a large capital gain, completed a Roth conversion, or had unusually high income before retirement, your Medicare premiums may be based on a year that no longer reflects your current income.

That does not always mean something went wrong. But it does mean Medicare premiums should be part of your retirement tax planning.

Before we go further, a quick introduction.

Winding Trail Financial Planning is a fee-only financial advisor in Lafayette, Colorado. We help retirees and near-retirees coordinate taxes, investments, Social Security, Medicare premiums, Roth conversions, and retirement income. We do our best work with people who are within a few years of retirement, recently retired, or trying to make smarter tax decisions with their retirement income.

This article is general education, not personalized tax, investment, or Medicare advice. Medicare rules and tax laws can change, and your personal situation matters.

What is IRMAA?

IRMAA is an extra Medicare premium that applies when your income exceeds certain thresholds.

It can apply to:

• Medicare Part B, which covers outpatient medical care

• Medicare Part D, which covers prescription drug coverage

This is important because IRMAA is not a separate tax you calculate on your tax return. It shows up through higher Medicare premiums.

For many retirees, that makes it feel a little different than income tax. You may not think of a Roth conversion, IRA withdrawal, or capital gain as affecting your health care costs, but it can.

That is why IRMAA planning sits at the intersection of tax planning, retirement income planning, and Medicare planning.

Why new retirees can get surprised by IRMAA

Medicare generally uses your modified adjusted gross income from two years ago to determine whether IRMAA applies.

That two-year lookback can create a mismatch.

For example, say you retire in 2026. Your current income may be much lower than it was while you were working. But your 2026 Medicare premiums may be based on your 2024 income.

If 2024 was a high-income working year, Medicare may still treat you like a high-income household even though you are now retired.

That is often where the surprise comes from.

You may be thinking:

“I’m retired now. Why are my Medicare premiums based on what I earned when I was still working?”

The answer is simply that Medicare is using the most recent tax information available under its normal process.

In some cases, you may just need to plan around it. In other cases, you may be able to ask Social Security to reconsider.

Can you appeal IRMAA after retirement?

In certain situations, yes.

If your income has gone down because of a qualifying life-changing event, you may be able to request a new initial determination from Social Security.

Common life-changing events include things like:

• Retirement

• Reduced work

• Marriage

• Divorce

• Death of a spouse

• Loss of pension income

• Loss of income-producing property

• Certain employer settlement payments

For retirees, the big one is usually retirement or reduced work.

The form used for this is Form SSA-44, Medicare Income-Related Monthly Adjustment Amount — Life-Changing Event.

This does not mean every retiree can automatically eliminate IRMAA. It also does not mean every income drop qualifies. But if your Medicare premiums are based on a high-income year and your income has since dropped because you retired or reduced work, it is absolutely worth understanding the process.

This is one of those areas where a little knowledge can be valuable.

What counts as income for IRMAA?

IRMAA is generally based on modified adjusted gross income. For this purpose, that usually means adjusted gross income plus certain tax-exempt interest.

In practice, that means many common retirement income sources can affect IRMAA, including:

• Wages or self-employment income

• IRA and 401(k) withdrawals

• Pension income

• Taxable Social Security benefits

• Interest

• Dividends

• Capital gains

• Rental income

• Business income

• Roth conversions

Notice what is on that list: Roth conversions.

A Roth conversion can be a very useful retirement tax planning tool. But it also increases taxable income in the year of the conversion. That means a Roth conversion can potentially increase future Medicare premiums because of the two-year IRMAA lookback.

That does not automatically mean Roth conversions are bad.

Sometimes paying higher Medicare premiums for a year or two may be worth it if the long-term tax savings are meaningful. But it should be intentional. You do not want to accidentally cross an IRMAA threshold because no one ran the numbers.

Roth conversions and IRMAA: the tradeoff

Many retirees consider Roth conversions in the years after retirement but before required minimum distributions begin.

That window can be powerful.

Your wages may have stopped. Social Security may not have started yet. Required minimum distributions may still be a few years away. That can create a temporary period where your taxable income is lower than it may be later.

But Medicare can complicate the decision.

A Roth conversion may save taxes over the long run, reduce future required minimum distributions, improve tax flexibility for a surviving spouse, and create more tax-free assets for later retirement.

At the same time, the conversion may increase your income for IRMAA purposes.

That creates a planning question:

Is the long-term tax benefit worth the potential Medicare premium increase?

Sometimes the answer is yes. Sometimes the answer is no. And sometimes the best answer is to do a smaller conversion that fills up a tax bracket without crossing a Medicare threshold.

This is why Roth conversions should not be evaluated only through the lens of federal income tax brackets. Medicare premiums matter too.

Capital gains can also affect Medicare premiums

IRMAA planning is not just about retirement accounts.

Taxable brokerage accounts matter too.

If you sell appreciated investments and realize a large capital gain, that gain can increase your income for IRMAA purposes. This can happen when retirees:

• Sell concentrated stock positions

• Rebalance a taxable portfolio

• Sell investments to fund spending

• Sell a second home or rental property

• Liquidate investments to pay off a mortgage

• Sell a business or receive business sale proceeds

Again, the issue is not that realizing gains is always bad.

Sometimes it is the right move. A concentrated stock position may carry too much risk. A portfolio may need to be rebalanced. A retiree may need cash. A property sale may be part of a broader lifestyle decision.

The point is that these decisions should be coordinated.

A large capital gain may affect your federal tax bill, state tax bill, Medicare premiums, and overall retirement cash flow. Looking at only one piece can lead to surprises.

IRA withdrawals and required minimum distributions

Traditional IRA and 401(k) withdrawals are taxable income. That means they can affect IRMAA.

Early in retirement, you may have some control over how much you withdraw from pre-tax retirement accounts. Later, required minimum distributions can force money out whether you need the income or not.

This is one reason retirement tax planning often starts before required minimum distributions begin.

If a household has large pre-tax retirement balances, future RMDs may increase taxable income, increase the taxation of Social Security, push the surviving spouse into higher brackets, and potentially trigger or increase IRMAA.

Planning strategies may include:

• Partial Roth conversions

• Earlier strategic IRA withdrawals

• Spending from taxable accounts first in some years

• Using qualified charitable distributions once eligible

• Coordinating Social Security timing

• Maintaining a mix of pre-tax, Roth, taxable, and cash assets

There is no universal withdrawal order that works for everyone. The right approach depends on your age, account mix, income needs, tax bracket, Medicare status, charitable goals, estate goals, and investment situation.

Why this matters for Colorado retirees

For retirees in Lafayette, Louisville, Erie, Boulder, Broomfield, Longmont, and the surrounding Colorado communities, IRMAA can show up in a few common situations.

You may be retiring from a high-income career and moving onto Medicare shortly after your peak earning years.

You may have a large 401(k), 403(b), IRA, or Colorado PERA benefit.

You may have a taxable brokerage account with appreciated investments after a long bull market.

You may own rental property or have business income.

You may be considering Roth conversions before required minimum distributions begin.

You may have charitable goals and want to coordinate giving with taxes.

Or you may simply want to avoid retirement surprises.

Medicare premiums are not the biggest issue in every retirement plan. But for many households, they are one more reason to coordinate tax planning and retirement income planning before decisions are made.

Should you always try to avoid IRMAA?

No.

This is important.

IRMAA is not something to blindly avoid at all costs. Sometimes it is better to pay higher Medicare premiums for a limited period if doing so supports a better long-term plan.

For example, a Roth conversion might temporarily increase Medicare premiums but reduce future required minimum distributions, lower lifetime taxes, and create more flexibility for a surviving spouse.

Or a capital gain might increase income for one year but help reduce portfolio risk, simplify your financial life, or fund an important goal.

The goal is not to worship the IRMAA thresholds.

The goal is to make informed decisions.

Sometimes the right answer is to stay below a threshold. Sometimes the right answer is to cross it intentionally. What you want to avoid is crossing it accidentally.

Practical planning steps before year-end

IRMAA planning is most useful before the tax year is over.

Once December 31 passes, many income decisions are locked in. That is why year-end planning matters.

Here are a few things to review before year-end:

1. Estimate your total income for the year.

This includes IRA withdrawals, pensions, Social Security, interest, dividends, capital gains, rental income, business income, and any Roth conversions.

2. Review whether a Roth conversion makes sense.

Do not just ask, “What tax bracket am I in?” Also ask how the conversion may affect Medicare premiums, Social Security taxation, future RMDs, and surviving spouse planning.

3. Look at capital gains before selling.

If you are planning to sell appreciated investments, review the tax and Medicare impact before placing the trade.

4. Coordinate charitable giving.

For charitably inclined retirees, strategies such as appreciated stock gifts, donor-advised funds, or qualified charitable distributions may be useful depending on your age and situation.

5. Watch one-time income events.

Business sales, property sales, deferred compensation, large bonuses, severance, stock compensation, and major portfolio changes can all affect IRMAA.

6. Keep good documentation if you retire or reduce work.

If you receive an IRMAA notice after retirement and your income has dropped because of a life-changing event, you may need documentation to support a request for reconsideration.

What if you already received an IRMAA notice?

Do not ignore it.

First, read the notice carefully. Confirm which tax year Medicare is using and what income amount is listed.

Second, compare that income year to your current situation.

If the notice is based on a high-income year and your income has dropped because of retirement or another qualifying life-changing event, review whether Form SSA-44 may apply.

Third, look ahead.

Even if you cannot reduce this year’s IRMAA, you may still be able to plan better for future years by coordinating withdrawals, Roth conversions, capital gains, charitable giving, and other income events.

Final thoughts

IRMAA is one of those retirement planning issues that tends to get attention only after someone receives a higher Medicare premium notice.

That is understandable. But it is not ideal.

The better approach is to include Medicare premiums in your tax planning before the decisions are made.

For retirees and near-retirees in Colorado, this is especially important if you have large pre-tax retirement accounts, appreciated investments, pension income, rental property, business income, or Roth conversion opportunities.

The goal is not to avoid every extra dollar of Medicare premiums.

The goal is to understand the tradeoffs, make intentional decisions, and avoid unnecessary surprises.

Thanks for reading.

Dwight Dettloff, CFP®, CPA/PFS, RICP®

At Winding Trail Financial Planning, we help retirees and near-retirees coordinate taxes, investments, retirement income, Social Security, Medicare premiums, and Roth conversion decisions.

If you are approaching retirement and want help thinking through these decisions, you can start here.

Frequently Asked Questions About Medicare IRMAA and Retirement Tax Planning

What is Medicare IRMAA?

IRMAA stands for Income-Related Monthly Adjustment Amount. It is an additional Medicare premium that higher-income retirees may pay for Medicare Part B and Part D. IRMAA is based on your income, so retirement income decisions like IRA withdrawals, Roth conversions, capital gains, and pension income can affect what you pay for Medicare.

Why are my Medicare premiums based on income from two years ago?

Medicare generally uses your tax return from two years ago to determine whether IRMAA applies. For example, your Medicare premiums this year may be based on income from two years prior. This can surprise new retirees because Medicare may still be looking at a high-income working year even though current retirement income is lower.

Can I appeal IRMAA after I retire?

You may be able to request a reduction in IRMAA if your income has gone down because of a qualifying life-changing event, such as retirement, reduced work, divorce, marriage, death of a spouse, or loss of pension income. The form generally used for this request is Social Security Form SSA-44.

Does a Roth conversion affect Medicare IRMAA?

Yes, a Roth conversion can affect Medicare IRMAA because the taxable amount of the conversion increases your income for that year. Since Medicare generally looks back two years, a Roth conversion today may increase Medicare premiums in a future year. That does not mean Roth conversions should always be avoided, but the Medicare premium impact should be part of the analysis.

Do capital gains count toward IRMAA?

Yes, capital gains can count toward the income used to determine IRMAA. Selling appreciated investments, a rental property, a second home, or a concentrated stock position may increase your income and potentially trigger higher Medicare premiums. This is one reason retirees should coordinate investment decisions with tax and Medicare planning.

Do IRA withdrawals affect Medicare premiums?

Traditional IRA and 401(k) withdrawals are generally taxable income, so they can affect Medicare premiums through IRMAA. Larger withdrawals may increase your modified adjusted gross income and could push you into a higher Medicare premium tier.

Does Social Security count toward IRMAA?

The taxable portion of your Social Security benefits is included in your adjusted gross income, which can affect IRMAA. However, not all Social Security benefits are necessarily taxable. The amount depends on your other income and filing status.

Should retirees try to avoid IRMAA at all costs?

Not always. Avoiding IRMAA can be helpful, but it should not be the only goal. In some cases, it may make sense to intentionally trigger higher Medicare premiums if doing so supports a better long-term tax plan, such as a Roth conversion strategy, portfolio rebalancing, or reducing future required minimum distributions.

How can I reduce the chance of an IRMAA surprise?

The best way to reduce IRMAA surprises is to run tax projections before year-end. Review IRA withdrawals, Roth conversions, capital gains, pension income, Social Security, business income, rental income, and charitable giving before December 31. Once the tax year closes, many planning options become limited.

Why does IRMAA matter for Colorado retirees?

Colorado retirees may have several income sources that can affect IRMAA, including IRA withdrawals, 401(k) balances, pensions, Colorado PERA benefits, taxable brokerage accounts, rental income, and business income. Coordinating these income sources can help retirees avoid unnecessary tax and Medicare premium surprises.

When should I start planning for IRMAA?

Ideally, you should start planning for IRMAA before enrolling in Medicare and before making major retirement income decisions. The years just before and just after retirement are especially important because Roth conversions, capital gains, severance, deferred compensation, business sales, and IRA withdrawals can all affect future Medicare premiums.

Who helps with IRMAA planning?

IRMAA planning often involves coordination between your financial planner, tax professional, and Medicare specialist. A financial planner can help model retirement income, Roth conversions, withdrawal sequencing, and investment sales. A tax professional can help review tax implications. A Medicare specialist can help evaluate coverage options.