IRMAA Deep Dive
Modified Adjusted Gross Income (MAGI): What Income Counts for IRMAA?
IRMAA is generally based on your Modified Adjusted Gross Income (MAGI) — your Adjusted Gross Income plus tax-exempt interest income. Understanding what counts and what does not is one of the most important steps in managing Medicare costs.
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Quick Answer
MAGI = Adjusted Gross Income (AGI) + Tax-Exempt Interest Income
For Medicare purposes, IRMAA is generally based on your Modified Adjusted Gross Income (MAGI). In most cases, this is your Adjusted Gross Income (AGI) plus tax-exempt interest income. Your MAGI — not simply your salary or Social Security benefit — is what determines whether you will pay an Income-Related Monthly Adjustment Amount.
What Is Adjusted Gross Income (AGI)?
Before understanding MAGI, it is helpful to understand AGI. Your Adjusted Gross Income (AGI) is the income figure shown on your federal income tax return after certain IRS-approved adjustments. Think of AGI as the starting point. From there, Medicare makes one additional adjustment to determine IRMAA.
Understanding how MAGI works is one of the most important steps in managing Medicare costs.
Income That Usually Counts Toward IRMAA
The following types of income generally increase your MAGI and may affect your Medicare premiums.
Employment Income
Wages, salary, bonuses, overtime, commissions, and self-employment earnings all count. If you are still working after age 65, your earned income may increase your Medicare premiums if it exceeds the applicable IRMAA thresholds.
Pension Income
Most pension payments are taxable. Because taxable pension income increases AGI, it may contribute toward IRMAA calculations. This surprises many retirees who assumed only employment income mattered.
Traditional IRA Withdrawals
Distributions from traditional IRAs are generally taxable. Large withdrawals can significantly increase your MAGI. For example, a retiree who withdraws $18,000 for home improvements, $35,000 to help grandchildren with college, and $40,000 for a new RV may push into a higher IRMAA bracket.
401(k), 403(b), and Other Pre-Tax Plan Distributions
Most withdrawals from pre-tax employer retirement plans are taxable — including 401(k), 403(b), 457 plans, SEP IRAs, and SIMPLE IRAs. Large distributions can temporarily increase Medicare premiums two years later.
Required Minimum Distributions (RMDs)
Beginning at the applicable IRS age, retirees generally must take Required Minimum Distributions from certain retirement accounts. Many retirees do not realize that increasing RMDs over time may gradually move them into higher IRMAA brackets.
Interest Income
Interest earned from savings accounts, certificates of deposit, corporate bonds, and Treasury securities may contribute to taxable income and increase MAGI.
Dividend Income
Dividends from stocks, mutual funds, and ETFs may increase AGI depending on the type of dividend received. Qualified dividends often receive favorable tax treatment but still count as income for Medicare purposes.
Capital Gains
Capital gains are one of the most common reasons beneficiaries unexpectedly owe IRMAA. Selling stock, mutual funds, investment property, a business, or collectibles can all trigger IRMAA — even a single large gain during one tax year can affect Medicare premiums later.
Rental Property Income
Net rental income reported on your tax return generally counts toward AGI. Retirees who own multiple rental properties should consider how rental income affects future Medicare costs.
Business Income
Income from sole proprietorships, partnerships, S corporations, and certain LLCs may increase MAGI. Business owners approaching retirement often benefit from discussing Medicare planning before major transactions.
Tax-Exempt Municipal Bond Interest
One of the biggest surprises for retirees: tax-exempt municipal bond interest is added back when Medicare calculates MAGI. While municipal bond interest may be exempt from federal income tax, it generally still counts for IRMAA purposes. This distinction catches many higher-income retirees off guard.
Income That May NOT Count Toward IRMAA
Not every dollar you receive increases MAGI. Here are several common examples.
Roth IRA Qualified Withdrawals
Qualified Roth IRA distributions are generally tax-free. Because qualified withdrawals typically do not increase AGI, they usually do not increase IRMAA. This is one reason Roth accounts can be valuable in retirement income planning.
Inheritances
Receiving an inheritance generally does not count as taxable income by itself. However, if inherited assets later generate interest, dividends, rental income, or capital gains, those earnings may affect future IRMAA calculations.
Life Insurance Death Benefits
Life insurance proceeds paid because of the insured's death are generally not taxable income. Therefore, they usually do not increase MAGI.
Gifts
Receiving cash gifts from family members generally does not create taxable income for the recipient. The gift itself usually does not trigger IRMAA.
Qualified HSA Distributions
Withdrawals from a Health Savings Account used for qualified medical expenses are generally tax-free. As a result, properly used HSA distributions generally do not increase MAGI.
VA Disability Benefits
Veterans Affairs disability compensation is generally tax-free. These benefits typically do not affect IRMAA.
Common Misunderstandings
Myth: Social Security automatically triggers IRMAA.
Reality: Many people assume all Social Security benefits automatically trigger IRMAA. The reality is more nuanced. Depending on your total income, a portion of your Social Security benefits may become taxable. If taxable benefits increase your AGI, they may indirectly affect MAGI.
Myth: Selling my house automatically creates IRMAA.
Reality: Not always. Many homeowners qualify for the IRS exclusion on the sale of a primary residence. Whether the sale affects IRMAA depends on factors such as gain amount, filing status, eligibility for the exclusion, and other taxable income during that year.
Myth: A Roth conversion does not matter for IRMAA.
Reality: Actually, it often does. Although future qualified Roth withdrawals may be tax-free, the conversion itself generally creates taxable income in the year of conversion. That temporary increase in income may trigger IRMAA two years later.
Example MAGI Calculation
Here is how MAGI is calculated for a hypothetical taxpayer:
MAGI Calculation Example
That final MAGI — not just salary or retirement income — is what Medicare compares to the annual IRMAA thresholds. At $119,000 (individual filer), this taxpayer falls into Tier 1 IRMAA for 2026.
Florida Planning Example
Retired Couple — St. Augustine, Florida
A retired couple in St. Augustine plans to sell appreciated stock to help purchase a second home. Before selling, they meet with their financial advisor and Medicare broker.
By spreading sales over multiple tax years instead of selling everything at once, they reduce the likelihood of crossing into a higher IRMAA bracket. While every situation is unique, coordinating tax planning with Medicare planning can help retirees avoid unexpected premium increases.
Key Takeaways
IRMAA is based on Modified Adjusted Gross Income (MAGI).
MAGI generally equals Adjusted Gross Income plus tax-exempt interest income.
Traditional retirement account withdrawals often increase MAGI.
Qualified Roth IRA withdrawals generally do not increase MAGI.
Capital gains, rental income, dividends, and pension income may all affect Medicare premiums.
Understanding what counts — and what does not — can help you plan major financial decisions more effectively.
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