Nine Income Sources That Can Help Keep Your Medicare Premiums Down

For retirees living on a fixed income, Medicare's Income-Related Monthly Adjustment Amount, or IRMAA, can make premiums unexpectedly higher. The surcharge is added when income crosses certain limits, and it can quickly eat into a retirement budget.

IRMAA is tied to modified adjusted gross income (MAGI), but not every source of money is counted the same way. By leaning on tax-advantaged or tax-free income streams, retirees can lower MAGI and avoid higher Part B and Part D costs. Here are nine kinds of income that generally do not increase Medicare premiums.

What IRMAA means

IRMAA is an added charge to Medicare Part B and Part D premiums when MAGI exceeds set thresholds from two years earlier. In practice, that means current premium surcharges are based on an earlier tax return.

If MAGI is above the applicable limit, the standard premium is increased by the surcharge. These extra costs affect higher-income Medicare beneficiaries and can add up over time.

MAGI includes adjusted gross income plus tax-exempt interest, so even income that is not taxable in the usual sense may still matter unless it is structured carefully.

How the Medicare surcharge brackets work

For the current premium year, single filers with income above $109,000 and joint filers above $218,000 fall into higher Medicare premium tiers. Part B surcharges range from $81.20 to $487, while Part D surcharges range from $14.50 to $91.

Even a small amount above a threshold can mean hundreds of extra dollars each year. Knowing where your income lands can help you plan withdrawals and other cash-flow decisions more strategically.

Not all income is treated the same for IRMAA purposes. The following sources may help keep your MAGI lower.

Roth IRA withdrawals

Qualified withdrawals from a Roth IRA are not included in MAGI for IRMAA purposes. That generally applies when the account has been open for at least five years and the account owner is over 59½, since those distributions are tax-free.

For example, a $10,000 Roth withdrawal would not raise MAGI. Retirees can use Roth money first to cover expenses while avoiding a surcharge trigger.

Health savings account withdrawals

Money taken from an HSA for qualified medical expenses is tax-free and therefore excluded from MAGI. For instance, a $7,500 withdrawal used for long-term care premiums would not affect IRMAA brackets, provided the expense is eligible and properly documented.

Life insurance proceeds

Lump-sum death benefits from a life insurance policy are generally tax-free and do not count toward MAGI. A $100,000 payout, for example, would not raise Medicare premiums.

That can make life insurance an effective source of cash without increasing Medicare costs. However, any interest earned on the proceeds is usually taxable, and taxable income tied to permanent policy growth can affect MAGI.

Reverse mortgage proceeds

Money received through a reverse mortgage is treated as a loan advance rather than income, so it does not increase MAGI. That makes it one possible non-taxable liquidity option.

Borrowers should still use it carefully, since the loan becomes due when the home is sold or when the borrower moves out.

Qualified charitable distributions

Direct gifts of up to $111,000 from an IRA to qualified charities may bypass taxable income and MAGI for eligible account owners age 70½ or older. Because the money goes straight from the IRA to the charity, it does not count as taxable income.

QCDs can support charitable causes while also helping manage income and satisfying required minimum distributions for those age 73 or older. They can be especially useful in years when MAGI is close to an IRMAA threshold.

Gifts from family or friends

Cash gifts from relatives or friends usually do not count as taxable income and do not raise Medicare's IRMAA income figure. This remains true even if the gift is larger than the annual exclusion amount, which applies to the giver rather than the recipient.

For example, if an adult child gives a parent $25,000 to help with retirement costs, the recipient generally owes no federal income tax on the gift and does not add to MAGI. Any future earnings from that money, however, could count if they are taxable.

Workers' compensation payments

Disability payments received under workers' compensation rules are not subject to federal tax and are excluded from MAGI. So a retiree receiving $15,000 from a work-related injury claim would not see Medicare premiums rise because of that payment.

These benefits can provide financial stability, but it is important that they be properly classified to preserve the tax exclusion.

Veterans' benefits

Disability pensions and other qualifying VA benefits are generally non-taxable and therefore do not count toward MAGI. An annual $20,000 disability pension, for example, would not be included in IRMAA calculations.

For eligible veterans, this can be an important tax-free source of support, but records should clearly identify the benefits to avoid misclassification.

Inheritance outside tax-deferred accounts

Inherited cash, property, or other assets received outside of tax-deferred accounts generally do not count as MAGI. IRS guidance says that gifts, bequests, and inheritances are not considered taxable income when received.

For example, inheriting $50,000 in a savings account should not push income higher in that year. Future earnings from those assets, such as rent or dividends, would generally count once received.

The takeaway

IRMAA does not have to drain retirement savings. By relying on income sources that do not raise MAGI, such as Roth withdrawals, reverse mortgage proceeds, or qualified charitable distributions, retirees may be able to control Medicare premiums more effectively.

Careful planning can help preserve more of a nest egg while keeping Medicare costs manageable.

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