Have you ever been surprised by how much you’re paying for Medicare? If so, you’re not alone, and the reason behind it may be lurking in your tax plan.
Medicare premiums aren’t just randomly assigned. They’re calculated based on something called IRMAA, your Income-Related Monthly Adjustment Amount. In simple terms, IRMAA is a fancy way of saying your Medicare premiums increase if your income is above certain thresholds. And here’s the kicker: poor tax planning can cause your income to appear higher than it needs to be, ultimately leading to much higher Medicare costs.
Let’s break this down so you can avoid falling into the IRMAA trap.
How Medicare Premiums Are Determined
In 2025, the base Medicare premium is set at $185 per month per person. For a married couple, that’s $370 monthly if your modified adjusted gross income (MAGI) stays below $212,000.
MAGI vs. Taxable Income: Your MAGI is your adjusted gross income with some deductions added back in, meaning it’s usually higher than your taxable income. This is important because while you may plan based on tax brackets, Medicare planning requires a closer look at MAGI.
As your income rises above certain thresholds, so do your Medicare premiums:
- $212,000 to $266,000: Premiums jump to $259/month per person for you and your spouse.
- $266,000 to $334,000: Premiums rise to $370/month per person for you and your spouse.
Keep in mind that the 24% tax bracket starts at $206,700, so as long as you stay below the 24% bracket, there’s no adjustment. But when you go into the 24% bracket, it goes all the way up to $394,000, which means there are three Medicare adjustments premiums just in the 24% bracket.
What makes this tricky is how easily you can cross into higher brackets without realizing it, especially if you’re not accounting for Required Minimum Distributions (RMDs) or taxable investment income.
The IRMAA Risk in the 24% Tax Bracket
Let’s consider a real-world scenario. A couple is in the 12% tax bracket until age 72. Then, smaller RMDs bump them into the 22% bracket. But by 2045, their IRA starts forcing larger distributions, which shoves them into the 24% tax bracket.
Not only are they now paying higher taxes on those distributions, but they’ve also crossed the Medicare threshold. This dual hit, higher taxes and higher Medicare premiums, is entirely avoidable with proper planning.
How Tax Planning Can Save You Money
Now imagine this same couple working proactively with a financial professional. Instead of waiting, they strategically convert portions of their IRA into a Roth IRA while still in the lower tax brackets.
This strategy spreads out their tax burden:
- Some conversions are taxed at 12%,
- Others at 22%, and
- The remainder at 24%.
By front-loading their taxes through Roth conversions, they shrink their future RMDs and with that, keep their income and Medicare premiums low in the long term. While some investment income later still bumps up their income, the overall impact is far less severe.
In fact, one modeled scenario showed this strategy reduced lifetime taxes by $1.7 million and helped the couple avoid those painful Medicare premium hikes.
The Bottom Line: Plan Early, Save Big
If you’re in your early 60s and have significant savings in tax-deferred accounts like a TSP or traditional IRA, don’t wait. That $1 million could grow substantially, and when RMDs begin, they could push you into higher tax brackets.
Final Takeaway
Higher Medicare premiums aren’t just about your healthcare, they’re about your income, and your income is directly impacted by how well you plan your taxes. If you want to avoid paying more than necessary, it’s time to start planning smarter, not just for taxes, but for Medicare too.
If you’re not sure where to begin, working with a financial advisor who understands tax-efficient retirement planning can make all the difference.
