How to Steer Clear of the Medicare Tax Torpedo

An older man looks surprised and confused as he looks at paperwork and his laptop while sitting on his living room sofa.

When retirees map out income in retirement, most think about their tax bracket, investment returns and required minimum distributions (RMDs).

What often gets overlooked is how Medicare premiums can rise dramatically if income crosses certain thresholds — a penalty known as the income-related monthly adjustment amount (IRMAA).

For higher-income retirees, IRMAA can quietly erode thousands of dollars a year. Worse, it can be triggered by financial moves that seemed smart at the time, like a Roth conversion or capital gains harvest.

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This is what some advisers call the Medicare "tax torpedo" — an unexpected hit to your retirement budget that lurks beneath the surface. Like any hidden threat, you don't always see it until it's too late.

Here's what you need to know and how to sidestep it.

What is IRMAA?

Medicare Part B and Part D premiums are based on modified adjusted gross income, typically from your tax return two years prior. In 2025, for example, Medicare will look at your 2023 tax return.

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The author of this article is a participant in Kiplinger's Adviser Intel program, a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

For 2025, the base premium for Part B is $185 per month. But if your income in 2023 rose above $106,000 (single) or $212,000 (married filing jointly), surcharges kick in.

These surcharges can push Part B premiums as high as $628.90 per person, per month, not including the extra cost for Part D coverage.

Over a couple's lifetime, these hidden costs can easily run into the six figures.

How the 'tax torpedo' strikes

The danger is that IRMAA thresholds are cliffs, not gradual phase-ins. Even one dollar over the line moves you into a higher premium bracket. This means a one-time event — selling property, a Roth conversion, taking a large IRA distribution — can inflate Medicare premiums for an entire year.

Consider this example:

To determine a couple's 2024 Medicare premiums, let's look use their income from two years before. Their modified adjusted gross income (MAGI) was $205,000 in 2022, just under the threshold for that year of $206,000. So, their Medicare premiums for 2024 stay at the base level of $174.70/month each.
The next year, they sell some stock, pushing their 2023 MAGI to $213,000. They're only $1,000 over the limit, but now their 2025 premiums jump to $259/month each, an increase of $74/month over the base premium of $185.
That "extra" $1,000 in income cost them nearly $900 in higher premiums for the year each. And that's only for Medicare Part A. Add in the IRMAA surcharge for Medicare Part D, and each person would pay a little over $1,050 per year in higher premiums — for a grand total for the couple of over $2,100.

They don't call it the Medicare torpedo for nothing. One dollar over the limit, and — boom — you're hit with a penalty that feels wildly out of proportion.

Strategies to avoid the hit

Fortunately, careful planning can help retirees stay clear of the Medicare torpedo:

1. Time Roth conversions carefully. Roth conversions can be powerful for long-term tax efficiency, but if done too aggressively, they can spike MAGI and trigger IRMAA.

In my practice, I've seen retirees save tens of thousands over their lifetime simply by timing Roth conversions before age 65.

2. Manage RMDs with QCDs. Once RMDs begin at age 73, those withdrawals count toward MAGI.

A qualified charitable distribution (QCD) allows individuals to give up to $108,000 per year for 2025 (or $216,000 for a married couple) directly from an IRA to a qualified charity, satisfying their RMD without increasing income. In 2026, those figures rise to $115,000 for individuals and $230,000 for couples.

3. Harvest gains strategically. If you need to sell appreciated assets, spread the sales across multiple years or pair them with deductions to keep MAGI under the threshold.

4. Use tax-efficient withdrawal sequencing. Coordinate withdrawals from taxable, tax-deferred and Roth accounts to smooth income over time, rather than creating spikes.

5. Appeal when life changes lower your income. Medicare allows appeals for IRMAA if income has dropped due to events like retirement, divorce or the death of a spouse. Many retirees overlook this opportunity.

Why this matters

Too often, retirees think of tax planning and Medicare planning as separate issues. In reality, they are deeply intertwined. The same strategies that save you on taxes can backfire if they push you over an IRMAA threshold.

The good news is that IRMAA is a planning risk — not an unavoidable fate. By anticipating how income decisions affect Medicare premiums, you can preserve more of your wealth and keep retirement costs under control.

Final thought

People always joke about hindsight being 20/20, but what no one talks about is how to use foresight to look ahead and insight to make meaningful adjustments today — so the hindsight we have later is something we're truly satisfied with.

Like a ship avoiding a torpedo beneath the surface, even a 1-degree course adjustment now can create a dramatically better outcome down the line.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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John Gardner entered the financial industry in 1987, just one day after the largest single-day market crash in U.S. history — a beginning that shaped his resilient, client-focused approach. With more than three decades of experience, he specializes in retirement income distribution, tax-efficient strategies, and guiding clients through major life transitions.