The Medicare Charge That Might Be Shrinking Your Social Security Checks

By Jack Strulowitz

A few months ago, a client called with concern in her voice. After being semi-retired for several years, her cash reserves had been largely spent down. Baruch Hashem, she and her husband built a comfortable nest egg over many years, but with the stock market reaching all-time highs, she has been hesitant to sell investments to supplement her living expenses.

Selling appreciated assets would provide the liquidity she needs, but doing so would also generate capital gains. After realizing gains in 2025, she learned that those gains would soon be increasing her Medicare premiums. Why?

The answer lies in a little-known Medicare rule called IRMAA.

IRMAA stands for Income-Related Monthly Adjustment Amount. It is an additional surcharge added to standard Medicare Part B and Part D premiums when income exceeds certain thresholds. Nearly six million people currently pay this surcharge, and the number continues to rise each year.

IRMAA does not arrive as a separate bill. Instead, it is deducted automatically from Social Security payments. For many people, the first sign that something has changed is a smaller monthly deposit. Because the deduction happens quietly and automatically, IRMAA often feels like it comes out of nowhere.

The most confusing part of IRMAA is how Medicare determines who pays it.

Medicare does not look at your income this year. It looks at your income from two years earlier. This is known as the two-year lookback rule. Income realized in 2024 is used to determine Medicare premiums in 2026. Income realized in 2025 will be used to determine premiums in 2027.

The income Medicare uses for this calculation is broad. It includes wages, interest, dividends, IRA withdrawals, Roth conversions, and capital gains. Medicare does not distinguish between recurring income and one-time events. A large capital gain from selling investments is treated the same as ongoing income.

Another layer of complexity is that IRMAA is assessed per person and applies for a full calendar year once triggered. For married couples, each spouse is evaluated separately, which can effectively double the impact. Once the surcharge is set for a given year, Medicare does not adjust it based on current income.

IRMAA is also structured in tiers. Each tier corresponds to a higher Medicare premium. The increases are not gradual. Crossing a threshold by even a small amount can result in meaningfully higher premiums for twelve months.

This tiered structure is what makes planning around capital gains so important. Selling an amount that pushes income just over an IRMAA threshold can lock in higher Medicare premiums for the entire year.

In this client’s case, capital gains realized in 2025 will affect her Medicare premiums in 2027.

That timing creates both risk and flexibility.

To address this, we projected her future income forward. That projection included expected dividends and interest, along with estimated IRMAA thresholds. Although future IRMAA brackets are not officially announced years in advance, they tend to move gradually, which allows for reasonable estimates and planning with a margin of safety.

Because of the two-year lookback, the analysis focused on how much capital gain could be realized in 2025 while remaining below the next IRMAA tier that would apply in 2027. This made it possible to identify an amount of investment sales that could provide needed liquidity without triggering a future increase in Medicare premiums.

This situation is becoming increasingly common. Many households reach a stage where earned income declines, cash reserves shrink, and investments become the primary source of liquidity. At the same time, years of strong market performance leave those investments with substantial unrealized gains.

Because IRMAA thresholds have not kept pace with inflation, more people are being pulled into higher Medicare premium tiers even when their overall lifestyle has not changed. Without planning, the interaction between capital gains and Medicare quietly erode cash flow.

There are limited circumstances in which IRMAA can be appealed, usually after specific life-changing events such as a significant reduction in earned income or the death of a spouse. Appeals require documentation and are reviewed individually. IRMAA is best managed by planning ahead, rather than trying to undo it after the surcharge has already been triggered.

The key takeaway is that Medicare premiums are affected by income decisions made years earlier. For anyone relying on investment sales to supplement income or rebuild cash reserves, understanding how capital gains interact with Medicare is essential.

With careful planning and advance coordination, it is possible to raise cash when needed while keeping future Medicare costs within a manageable range. 

Jack Strulowitz is a Financial Advisor at Bernath & Rosenberg in Cedarhurst, NY, where he helps high–net worth individuals and families manage their investments and build comprehensive strategies for retirement, tax, and estate planning. For questions or to schedule a consultation, please contact [email protected] or 847-962-3352.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. 

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