Managing Your Medicare Premiums

How much you’ll end up paying for your Medicare coverage depends on a variety of factors, including your work history, current income level, age, health status, the specific Medicare plans selected and the year in which you apply. There are also three different components of what you’ll end up paying for: premiums, deductibles, and co-insurance – and Medicare may decide at some point to change these things. Fortunately, with a little planning you can dampen down the surprises – and keep your expenses to a minimum.

What you pay for Medicare is determined by your modified adjusted gross income (MAGI) as reported to the IRS. As a practical matter, this means that your premiums will be calculated based on your reported MAGI from two years earlier, so your 2025 Medicare premiums would usually be based on your 2023 income, and so on. The greater your MAGI, the more you would pay.

This can be especially detrimental for people who still have sizable income in retirement. In particular, a large IRA that incurs sizable required minimum distributions (RMDs) may cause you to pay inflated Medicare premiums.  It’s important to get out in front of these issues and take a thoughtful approach to how you take your RMDs. One tactic: Begin tapping your IRAs before age 73 to help bring down your balances, along with your subsequent RMDs.

Another group at risk of inflated premiums: Business owners who may not be actively involved in the activity, but for tax reporting purposes have business income flowing through their personal return. In those instances, you may not be working, but the income passing through from the business can impact your premiums.

It’s also important to note that your Medicare premiums may not be static. Each December, Medicare recipients will receive a notice telling them if their Medicare premiums have been adjusted due to their income, called an Income Related Monthly Adjustment Amount (IRMAA). For 2025, as an example, Medicare recipients whose MAGI was above $106,000 (or $212,000 for a couple) from two years prior (2023 in this case) would be subject to IRMAA. Your IRMAA is recalculated each year and could be reduced the following year. You are not necessarily locked into a permanent premium increase.

Your total Medicare Part B monthly premium is calculated by adding your IRMAA to the standard monthly premium, which for 2025 is $185. Your Medicare prescription drug premium (Part D), is also subject to an IRMAA, but the base premium will vary per person based on the type of coverage selected and where you live. The average base premium for Part D is $46.50, which was used for the calculations below.

If you filed your taxes as:	And your MAGI was:	Your Part B monthly premium (IRMAA + standard premium):	Your prescription drug coverage monthly premium (IRMAA + average premium):
Single Head of Household Qualifying Widow(er) with Dependent Child Married: Filing Separately (and you did not live with your spouse in tax year)	$106,000.01 - $133,000.00 $133,000.01 - $167,000.00 $167,000.01 - $200,000.00 $200,000.01 - $500,000.00 Greater than or equal to $500,000	$259.00 $370.00 $480.90 $591.90 $628.90	$60.20 $81.80 $103.50 $125.10 $132.30
Married: Filing Jointly	$212,000.01 - $266,000.00 $266,000.01 - $334,000.00 $334,000.01 - $400,000.00 $400,000.01 - $750,000.00 Greater than or equal to $750,000	$259.00 $370.00 $480.90 $591.90 $628.90	$60.20 $81.80 $103.50 $125.10 $132.30

 

If you find yourself facing an IRMAA, you are permitted to file an appeal to get your premiums reduced, but you must attest to having had a “life-changing event.” Some common examples of this would be a decrease in income due to retirement or a change in marital status. You only have 60 days from the time you get notification of your increased premium to file your appeal, so you’ll need to stay on top of this.

Medicare is a complex landscape, and pre-retirees often enter it with little experience in how it works. For guidance, consult with your Baird Financial Advisor team. They can help you review Medicare coverage options and help you keep your Medicare costs in check. 

Editor’s Note: This article was originally published October 2021 and was updated April 2025 with more current information.

The information offered is provided to you for informational purposes only. Robert W. Baird & Co. Incorporated is not a legal or tax services provider and you are strongly encouraged to seek the advice of the appropriate professional advisors before taking any action. The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.