IRMAA After a Windfall: How Your Medicare Premiums Change
A large taxable windfall can add up to $5,844 per year per person to your Medicare Part B premium—and the bill arrives two years after the event. If you're on Medicare or approaching 65, this is a number that belongs in your windfall plan before the money moves.
What IRMAA is
IRMAA stands for Income-Related Monthly Adjustment Amount. It is a surcharge on Medicare Part B (medical coverage) and Part D (prescription drug coverage) premiums that applies to higher-income beneficiaries. The Social Security Administration sets your IRMAA tier each year using your MAGI (Modified Adjusted Gross Income) from two tax years prior.1
- Your 2026 Medicare premiums are based on your 2024 tax return MAGI.
- A windfall received in 2026 will affect your 2028 Medicare premiums.
- If the windfall was in 2025, IRMAA will hit in 2027—and may still be in effect in 2028 if the income year crossed into a second calendar year.
Because the surcharge follows income with a two-year delay, many people are caught off guard. The windfall money may already be spent, invested, or distributed to family by the time the Medicare bill arrives.
2026 IRMAA tiers and monthly costs
Premiums are based on your 2024 MAGI. The table shows what Medicare Part B costs per person per month at each income tier, plus the additional Part D surcharge.12
| 2024 MAGI — Single | 2024 MAGI — Married Filing Jointly | Part B Monthly Premium | Part D Surcharge (added to plan premium) | Annual extra cost (single, both parts) |
|---|---|---|---|---|
| Up to $109,000 | Up to $218,000 | $202.90 (base) | — | — |
| $109,001 – $137,000 | $218,001 – $274,000 | $284.10 | +$14.50 | +$1,148/yr |
| $137,001 – $171,000 | $274,001 – $342,000 | $405.90 | +$37.50 | +$2,436/yr |
| $171,001 – $205,000 | $342,001 – $410,000 | $527.50 | +$60.40 | +$3,900/yr |
| $205,001 – $500,000 | $410,001 – $750,000 | $649.50 | +$83.30 | +$5,359/yr |
| Over $500,000 | Over $750,000 | $689.90 | +$91.00 | +$5,844/yr |
For a married couple where both spouses are on Medicare, double the "Annual extra cost" column. A couple whose 2024 MAGI exceeds $750,000 will pay an additional $11,688 per year in 2026 Medicare premiums.
Which windfalls trigger IRMAA
IRMAA applies to your MAGI as reported on your federal return. Whether a windfall affects MAGI depends entirely on whether it is taxable income. Many windfalls are partially or fully excluded from income:
| Windfall Type | IRMAA Exposure? | Why |
|---|---|---|
| Physical injury settlement (§104) | No — if purely physical damages | Excluded from gross income under IRC §104(a)(2). Punitive damages and interest are taxable and do count toward MAGI. |
| Life insurance death benefit (§101) | No — on the death benefit itself | IRC §101(a) excludes death benefits from gross income. Interest earned on retained proceeds or retained settlement options is taxable and counts toward MAGI. |
| Gift or inheritance of cash/assets (§102, §1014) | No — at receipt | Gifts and inheritances are excluded. But income earned after receipt (interest, dividends, capital gains on subsequent sale) counts toward MAGI. |
| Home sale under §121 exclusion | Only on the taxable gain above the exclusion | The $250,000/$500,000 (MFJ) exclusion reduces MAGI. Gain above the exclusion is fully taxable and increases MAGI. |
| Business sale (LTCG) | Yes — fully | Long-term capital gains count toward MAGI. A $3M gain from selling a business will push MAGI into the top IRMAA tier in the sale year. |
| Equity windfall: RSU vesting, NQSO exercise | Yes | Ordinary income at vest/exercise. The full FMV is included in MAGI. |
| Non-physical lawsuit settlement (employment, discrimination) | Yes | Fully taxable as ordinary income. A large employment settlement commonly triggers top-tier IRMAA. |
| Inherited IRA distributions | Yes — each year of distribution | Every dollar distributed from an inherited IRA is ordinary income. Under the 10-year rule, large inherited IRAs may push MAGI above IRMAA thresholds for up to 10 years. |
| Deferred compensation (NQDC) payout | Yes | Paid as ordinary income in the distribution year. IRMAA is a key reason to consider installment elections under §409A. |
| Lottery winnings (taxable) | Yes | Lottery winnings are ordinary income. Large lump-sum payments trigger top-tier IRMAA for the lump-sum year. |
Form SSA-44: the appeal that usually does not apply
The Social Security Administration allows beneficiaries to appeal their IRMAA tier using Form SSA-44 if a "life-changing event" reduced their income since the reference tax year. The qualifying events are:3
- Marriage, divorce, or legal separation
- Death of a spouse
- Work stoppage (you stopped working or reduced work hours)
- Loss of income-producing property beyond your control
- Loss or reduction of pension income
- Employer settlement payment (very limited circumstance)
- A one-time capital gain from selling a business or investment property
- An inherited IRA distribution that raised your income temporarily
- A legal settlement, lottery win, or RSU payout
- Any windfall where your income was high in the reference year and has since dropped—but for reasons other than the qualifying life events above
Most sudden-wealth recipients cannot use Form SSA-44. The windfall raised income in the reference year; it is not a "loss" event. The only exception is if you also stopped working around the same time the windfall arrived—for example, a business sale that ended an employment relationship.
If IRMAA was triggered by a prior-year event and your income has since normalized, your tier will automatically reset when the SSA processes your newer tax return (typically 2 years after the event). No appeal is required for the natural expiration.
Strategies to reduce IRMAA exposure
1. DAF contribution in the windfall year
A donor-advised fund contribution is a current-year charitable deduction that directly reduces MAGI. If a $500K business sale pushes you into the top IRMAA tier, a $50,000 DAF contribution might bring MAGI below the next tier down—saving $1,459 per year in Part B premiums alone. The deduction is limited to 60% of AGI for cash contributions and 30% for appreciated securities.
2. Installment sale elections (§453)
Rather than receiving the entire business sale price in a single year, an installment sale spreads the taxable gain over the payment period. This prevents a single income spike from triggering multiple years of top-tier IRMAA. The tradeoff: you receive the money over time rather than immediately. Installment sale elections cannot be undone after the transaction closes.4
3. Roth conversion timing
After a windfall year with elevated income, years 2–5 may offer lower-income windows ideal for Roth conversions. Converting at a Roth when your MAGI is below an IRMAA tier threshold avoids triggering a second round of surcharges while also reducing future RMDs (which would otherwise push MAGI higher in later years).
4. Asset location: tax-exempt income
Interest from U.S. Treasury bonds is exempt from state income tax but still counts toward MAGI. Municipal bond interest is excluded from MAGI under IRC §103. For windfall recipients who need to park large sums before deploying them, tax-exempt money market funds (invested in munis) or muni bond ladders reduce ongoing MAGI relative to taxable equivalents.
5. Qualified Opportunity Zone (QOZ) investment
A QOZ investment defers the recognition of a capital gain from a business or investment property sale. The deferred gain is not included in MAGI until it is recognized (the earlier of the QOZ investment sale or December 31, 2026 for gains deferred under current law). If a deferral prevents the gain from being recognized in a Medicare-eligible year, IRMAA on that gain may be avoided entirely.
6. Know the tier boundaries before acting
The $109,000 and $137,000 thresholds for single filers are close enough that modest planning decisions—timing a Roth conversion, whether to take an IRA distribution in December or January, whether to donate appreciated stock now vs. next year—can shift you from one tier to another. A financial advisor can model MAGI against the tier boundaries before any irreversible decision is made.
Multi-year IRMAA exposure
Not all windfall events create a single-year income spike. Some scenarios generate sustained MAGI elevation across multiple years:
Inherited IRA: 10-year rule
Non-spouse beneficiaries who inherit a traditional IRA must deplete it within 10 years and, if the original owner had already begun RMDs, must take annual RMDs each year during that period (per T.D. 10001, finalized 2024). A $2 million inherited IRA distributed over 10 years creates $200,000 per year of ordinary income—enough to trigger Tier 1 IRMAA for a full decade.
Installment sales and earnouts
A 5-year installment sale defers taxes, but also spreads IRMAA exposure across 5 years (with a 2-year lag). If the gain per installment year is above the first IRMAA threshold, the beneficiary may face 5+ consecutive years of elevated Medicare premiums rather than one year at the top tier.
Deferred compensation installments
NQDC installment elections under §409A spread payout over multiple years. This can reduce the single-year income spike that triggers the highest IRMAA tier, but it also extends IRMAA exposure across the distribution period. The tradeoff depends on the income level in the distribution years and whether Roth conversions or other income-reduction strategies can offset the NQDC income in the intervening years.
A multi-year IRMAA model—mapping out annual MAGI projections against the tier schedule—is one of the most valuable outputs of working with a fee-only advisor after a major liquidity event.
Work with an advisor to model your IRMAA exposure
IRMAA planning works only if it happens before the windfall year closes. Once the year ends, the income is locked in and the surcharge is unavoidable for two years. A fee-only advisor can model the MAGI impact, identify the tier boundaries that matter, and sequence charitable contributions, conversions, and investment decisions before it is too late.
Sources
- 2026 IRMAA income thresholds and Part B premium amounts — SSA determines IRMAA annually using MAGI from two years prior. Part B base premium: $202.90/month (2026). Tier 1 premium: $284.10. Tier 5 premium: $689.90. CMS Fact Sheet: 2026 Medicare Parts A & B Premiums and Deductibles. Income thresholds confirmed by SSA POMS HI 01101.020 — IRMAA Sliding Scale Tables (updated December 2025).
- 2026 Part D IRMAA surcharges: $14.50/$37.50/$60.40/$83.30/$91.00 per tier. Kiplinger: Medicare Premiums 2026 — IRMAA Brackets and Surcharges for Parts B and D.
- Form SSA-44 qualifying life-changing events. SSA Form SSA-44 (Medicare Income-Related Monthly Adjustment Amount — Life-Changing Event).
- IRC §453 installment sale rules — gain recognition spread over payment period; election cannot be revoked without IRS consent after the close of the tax year. IRS Tax Topic 705: Installment Sales.
- T.D. 10001 (July 2024): finalized inherited IRA annual RMD requirement for non-spouse beneficiaries when decedent died after required beginning date. IRS: RMDs for IRA Beneficiaries.
IRMAA values verified June 2026 against CMS 2026 fact sheet, SSA POMS HI 01101.020, and Kiplinger 2026 Medicare premium coverage. Tier 2 and Tier 4 Part B premiums are calculated from the CMS Part B program cost formula (50% and 80% cost-sharing tiers) and should be confirmed against the final POMS update. Dollar thresholds are 2026 values based on 2024 MAGI; verify future-year adjustments annually.
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