If you've worked hard to build wealth for retirement, the last thing you want is to watch thousands of dollars slip away to avoidable Medicare surcharges. Yet that's exactly what happens to countless high-income retirees who don't understand how IRMAA works, or how to plan around it.

Here in Stuart, FL, we see this all the time. Successful professionals and business owners retire with solid nest eggs, only to get blindsided by premium increases they never saw coming. The good news? With the right planning, you can sidestep these costly mistakes entirely.

Let's break down the seven biggest IRMAA mistakes and, more importantly, how to avoid them.

Table of Contents

  1. What Exactly Is IRMAA?
  2. Mistake #1: Not Budgeting for IRMAA at All
  3. Mistake #2: Forgetting the Two-Year Lookback Rule
  4. Mistake #3: Expecting Automatic Adjustments After Retirement
  5. Mistake #4: Timing Major Transactions Without IRMAA Consideration
  6. Mistake #5: Not Accounting for One-Time Income Events
  7. Mistake #6: Neglecting Passive Income Management
  8. Mistake #7: Ignoring the All-or-Nothing Bracket Structure
  9. Proactive Strategies to Keep More of Your Money
  10. Take Control of Your Retirement Income Planning

What Exactly Is IRMAA?

IRMAA stands for Income-Related Monthly Adjustment Amount. It's essentially a surcharge on your Medicare Part B and Part D premiums if your income exceeds certain thresholds. Think of it as an additional "tax" that higher earners pay for Medicare coverage.

For a married couple, IRMAA surcharges can easily exceed $10,000 per year. That's real money that could be funding your lifestyle, your grandkids' education, or your favorite charity.

The kicker? Most retirees don't even know IRMAA exists until they get that first notice from Social Security. By then, the income that triggered the surcharge was earned two years ago, and there's nothing you can do about it.

Medicare card and floating money symbolize IRMAA surcharges high-income retirees may face in retirement

Mistake #1: Not Budgeting for IRMAA at All

Here's the thing: most people plan meticulously for income taxes in retirement. They think about tax-efficient withdrawal strategies and how to minimize their tax bill. But IRMAA? It doesn't even register on their radar.

Then the notice arrives, and suddenly they're paying hundreds more per month than they expected.

How to avoid it: Treat IRMAA like an additional income-based tax from day one of retirement planning. Build it into your withdrawal strategy, and you won't be caught off guard.

Mistake #2: Forgetting the Two-Year Lookback Rule

This one trips up almost everyone.

IRMAA is based on your Modified Adjusted Gross Income (MAGI) from two years prior, not your current income. So if you're wondering why your 2026 Medicare premiums are sky-high, look at your 2024 tax return. That's the income Social Security is using.

By the time you receive notice of surcharges, that income was earned long ago. You can't go back and change it.

How to avoid it: Plan your income two years ahead. Know that what you earn this year will impact your Medicare costs in 2028. This forward-thinking approach is exactly what we help clients with at Davies Wealth Management.

Mistake #3: Expecting Automatic Adjustments After Retirement

Picture this: You retire, your income drops significantly, and you assume your IRMAA surcharges will automatically decrease too.

They won't.

The Social Security Administration doesn't know your situation has changed unless you tell them. Even if you go from earning $300,000 to $50,000, they'll still use that old income figure until you file the proper paperwork.

How to avoid it: If you experience a qualifying life-changing event, retirement, divorce, death of a spouse, work reduction, file Form SSA-44 to request an adjustment. Don't wait for the system to catch up on its own.

Mature couple at desk reviewing retirement documents, planning for IRMAA and income adjustments

Mistake #4: Timing Major Transactions Without IRMAA Consideration

This is where things get expensive fast.

Common retirement moves like large IRA withdrawals, selling rental properties, realizing capital gains from portfolio rebalancing, or executing Roth conversions can push your income over IRMAA thresholds unexpectedly. One poorly timed transaction can cost you thousands in surcharges for an entire year.

How to avoid it: Stagger major financial moves across multiple tax years. Instead of taking a $200,000 IRA distribution in one year, consider splitting it over two or three years. The same goes for Roth conversions, spreading them out can keep you below those threshold cliffs.

We dive deeper into tax-smart retirement planning on the Davies Wealth Management podcast if you want to explore this topic further.

Mistake #5: Not Accounting for One-Time Income Events

Selling a business. Closing on a major real estate deal. Harvesting significant investment gains. These one-time events can create massive income spikes that inflate your MAGI for the year, and trigger hefty IRMAA surcharges for years to come.

How to avoid it: Plan the timing carefully. Adjust closing dates when possible. Consider installment-sale treatment for property sales to spread income over multiple years. Use tax-loss harvesting to offset gains. Even small timing adjustments can mean the difference between standard premiums and thousands in surcharges.

Mistake #6: Neglecting Passive Income Management

It's easy to focus on the big income sources, your pension, Social Security, IRA distributions. But what about the "smaller" stuff?

Dividends, interest, and capital gains all count toward your MAGI. Individually, they might seem minor. But when you add them up, they can nudge you right over an IRMAA bracket threshold.

How to avoid it: Take a holistic view of all income sources. Space out asset sales over multiple tax years. Consider shifting holdings to more tax-efficient funds. Use strategic tax-loss harvesting to manage your cumulative passive income exposure.

Glass jars with coins illustrate managing passive income streams and strategic financial allocation

Mistake #7: Ignoring the All-or-Nothing Bracket Structure

This might be the most frustrating aspect of IRMAA: it uses tiered brackets where crossing a threshold triggers the full surcharge for that tier.

Read that again.

Going just $1 over a bracket boundary triggers the entire surcharge for the next tier, not a prorated amount. You could be $1 under and pay standard premiums, or $1 over and pay thousands more. There's no gradual phase-in.

How to avoid it: Map out IRMAA income brackets for each year and align your withdrawals and transactions to stay just below thresholds. This requires careful planning, but the savings can be substantial.

Proactive Strategies to Keep More of Your Money

Beyond avoiding these seven mistakes, here are some proactive approaches to minimize IRMAA's impact:

  • Blend your account withdrawals: Coordinate withdrawals from traditional IRAs, Roth accounts, and taxable accounts to spread income evenly across years.

  • Defer or accelerate income intentionally: If you're retiring in a particular year, consider shifting income to earlier or later tax years, delaying bonuses or accelerating charitable giving.

  • Use tax-deferred accounts strategically: Place interest-heavy holdings in tax-deferred accounts to reduce current taxable income.

  • Plan around Required Minimum Distributions: Once RMDs begin at age 73, coordinate withdrawals carefully to manage their impact on MAGI. This ties directly into your overall estate planning strategy.

The key insight here is that IRMAA isn't fixed, it's controllable. Rather than treating it as an unavoidable tax, address it as part of your overall retirement strategy before surcharges take effect.

Take Control of Your Retirement Income Planning

Here's the bottom line: IRMAA planning isn't about finding loopholes or gaming the system. It's about being smart and intentional with the timing and structure of your retirement income.

For high-income retirees in Stuart and the Treasure Coast, getting this right can mean keeping tens of thousands of dollars over the course of retirement. Getting it wrong? Well, you've seen what that looks like.

At Davies Wealth Management, we help clients navigate exactly these kinds of complex retirement decisions. From coordinating your investment strategy with tax planning to building sustainable income plans that account for IRMAA, we take a comprehensive approach to keeping more money in your pocket.

Ready to get ahead of IRMAA and optimize your retirement income? Reach out to our team to start the conversation. Your future self will thank you.