How One Extra Dollar of Income Can Cost You Thousands in Retirement

Even modest changes in retirement income can raise Medicare premiums under IRMAA. Here’s how even a small increase can affect your retirement costs. When you purchase through links on our site, we may earn an affiliate commission. Here’s how it works. Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.You are now subscribedYour newsletter sign-up was successfulWant to add more newsletters?Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. 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But unfortunately for some, a seemingly minor increase in reported income can ripple through your finances, affecting not just your tax return but also your Medicare premiums.If you're on Medicare, the Income Related Monthly Adjustment Amount (IRMAA) means that crossing an income threshold by even one dollar can trigger higher Medicare Part B and Part D premiums.Understanding how IRMAA works is essential — especially when a single dollar can make a difference. So, here's more of what you need to know about structuring retirement income to avoid unnecessary costs and taxes.Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special IssuesProfit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.Profit and prosper with the best of expert advice - straight to your e-mail.IRMAA increases Medicare Part B and Part D premiums once your modified adjusted gross income (MAGI) exceeds specific thresholds. For IRMAA purposes, MAGI generally includes adjusted gross income (AGI) plus tax-exempt interest.The key detail is how the thresholds operate. They are fixed tiers. If income exceeds a threshold by even one dollar, the higher premium applies.Consider a married couple whose income exceeds an IRMAA threshold by one dollar. Crossing that line moves them into the next premium tier. That single dollar can increase Medicare Part B and D premiums by roughly $ 1,000 per person annually, even though ordinary income tax rates apply only to the additional dollar itself.For the 2025 tax year (returns you're filing now this 2026 tax season), retirees who cross the first IRMAA threshold pay an additional $74 per month for Medicare Part B and $13.70 per month for Part D coverage, according to the Centers for Medicare & Medicaid Services (CMS).That totals approximately $1,052 per person annually, or roughly $2,105 for married couples.Note: These surcharges apply in addition to ordinary income tax on the same income. IRMAA income thresholds are adjusted annually for inflation, and CMS publishes updated brackets each year.Here’s the catch: IRMAA doesn’t look at what you’re earning now. The amount is based on your income from two years earlier. That means the income reported on your 2024 tax return determines what you’ll pay for Medicare premiums in 2026.The rule is spelled out in the Social Security Administration’s IRMAA guidance, but it’s easy to overlook how small income changes from one year to the next can affect future premiums.For example, because of the lookback delay, a Roth conversion, capital gain, or larger withdrawal might not affect premiums until two years later. By the time the increase appears, the income decision that caused it may feel disconnected from the result.IRMAA determinations are reassessed each year using the most recent tax return available, which makes income forecasting a critical part of retirement planning.As retirement income fluctuates, several tax calculations can shift in tandem.So, even a modest income increase can trigger concurrent increases in taxes on Social Security benefits and Medicare premiums.Some practical examplesConsider a retiree whose income, based on 2025 IRMAA thresholds, ends up just one dollar over the first income threshold with a MAGI of $106,001. At a 22% federal tax rate, that single dollar starts a chain reaction:The total damage? Approximately $1,052.40 for the year, all because of one extra dollar of income.Now consider a retiree whose income, based on 2026 IRMAA brackets, ends up just one dollar over the first income threshold with a MAGI of $109,001. At a 22% federal tax rate, that single dollar starts a chain reaction:The total damage? Approximately $1,148.40 for the year, all because of one extra dollar of income.In each scenario, you can see how the retiree pays more in taxes and Medicare premiums than the extra income generated. That's the effect of a hard income threshold.Note: IRMAA isn't a tax, but it can function like a stealth one. When income increases, both federal taxes and Medicare premiums, the true marginal cost of that extra dollar can be higher than expected.Retirees are often vulnerable to surcharges because the IRMAA trigger is highly sensitive to small income changes. However, the objective isn't to eliminate income but rather to manage its timing.Because IRMAA responds to shifts rather than just steady increases, maintaining a modest buffer below thresholds can reduce the risk of unexpectedly crossing into a higher tier.Required Minimum Distributions (RMDs): Once you turn 73, retirement account withdrawals count toward your MAGI, which can push you over the IRMAA threshold. Projecting these distributions early can help you anticipate how future income will shape your taxes and IRMAA exposure.The Occasional Roth Conversion: Converting from a traditional IRA to a Roth IRA can lead to a MAGI spike for that year. However, if completed before Medicare enrollment, these conversions can help reduce future exposure to higher premium tiers. Spreading or "staggering" conversions across multiple years can further reduce sharp increases in adjusted gross income.Dividends and Capital Gains: Even if you don’t sell, fund payouts quietly increase income. Similarly, large one-time events, like the sale of a business or investment property, can affect premiums. Staggering capital gains rather than realizing them in a single year can help control these income spikes.When income crosses an IRMAA threshold by even one dollar, Medicare premiums can increase.But, as you may already have experienced, retirement income doesn't operate in a vacuum. It flows through the tax code and into Medicare premiums. Comprehensive planning can help you navigate those interactions thoughtfully and keep more of your earnings.Review your specific financial circumstances with a qualified tax professional. They can help clarify potential tax exposure beforehand rather than after the fact.Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.Chrissy Paradis is a Raleigh-based writer and multimedia producer specializing in retirement and tax planning for pre-retirees and retirees. She develops radio and digital content for nationwide audiences, covering retirement income, portfolio strategy, long-term care, and healthcare costs. With more than a decade of experience in broadcast journalism, she writes about financial issues affecting everyday investors. She holds a B.A. in Communication with a concentration in Media and a Paralegal Certificate from North Carolina State University. Teaching your kids to invest early will help them build a solid financial future. Here are five ways to get them started. Your internet needs can change dramatically after you stop working. Here's how to make sure you're not overpaying (or underpowered). We are 66 and have reached our retirement savings goal. Our plan is to travel, but my husband can't seem to let go of work. 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