IRMAA for high earners: what a deferred comp payout really costs in Medicare premiums

What does IRMAA actually count, and from which year?

Most retirees believe IRMAA is based on last year's salary. The actual rule: Social Security uses MAGI—adjusted gross income plus any tax-exempt interest—from the return filed two years before the premium year. For premiums that begin in 2026, SSA looks at your 2024 tax return. Deferred comp installments, gains from selling company shares, IRA withdrawals and Roth conversions all count as MAGI. Municipal bond interest is added back in, even though it's not taxable income.

The IRMAA tiers are cliffs, not a phase-in. If joint MAGI is $218,000, each spouse pays $202.90 a month. One dollar over that threshold moves each of you to $284.10 a month for the entire year. The difference between the lowest tier and the highest is $487 per person monthly, or $11,688 a year for a couple. That single dollar can matter, which is why Scotia Wealth Management totals MAGI for each payout year before filing and avoids crossing a tier when the election allows.

Most retirees see the surcharge as a one-time hit at the start of Medicare. In practice SSA takes it from your Social Security deposit each month, so the check shrinks. SSA redetermines the surcharge every year using the return from two years earlier, so the 2027 premium reads 2025 income, not 2026. Installments that keep MAGI high every year keep the surcharge every year. A single high year produces a single year of surcharge, two years later, and premiums drop back to $202.90 once a lower-income year becomes the lookback year.

When is a Medicare surcharge big enough to change a payout election?

IRMAA is worth planning around only for income in years when someone in your household will be on Medicare two years later—which means income at age 63 or older. Even then, a couple's worst case under 2026 tiers is $11,688 for that year.

Before changing an existing election to avoid the surcharge, weigh that number against the income tax on the lump sum and the credit-risk effects of leaving deferred pay with an employer that might be acquired. If the current election already keeps joint MAGI under $218,000, leave it alone. Scotia Wealth Management's first question is always what the existing election produces year by year; if it's already under a tier, there's no reason to change it.

If the payout calendar and the Medicare calendar overlap

Three deadlines drive this decision, and they arrive in calendar order. First: the 409A re-election. If you want to change how your deferred comp pays out, the election must be filed at least 12 months before the scheduled payment, and it must push that payment at least five years later. Specified employees of public companies face an additional six-month delay after separation from service, which can move a late-year retirement's first payment into the following calendar year—and that year's income counts toward MAGI two years before Medicare.

Next comes the income year itself. The year two years before each spouse's 65th birthday is the first year whose MAGI sets that spouse's premium. On a joint return, the couple's combined MAGI applies to both. So if you're 63 and your spouse is 61, your 2026 and 2027 income will set your 2028 and 2029 premiums. For your spouse, it's 2028 and 2029 income that matters. That's why payout timing is so different for couples close in age versus couples far apart.

SSA gets the MAGI data from the IRS. The tax return is filed by April 15, the IRS passes the information to SSA, and SSA usually mails the IRMAA determination letter near year-end, before the premium year begins. You have 60 days from that notice to request reconsideration if your income dropped that year due to retirement, a spouse's death, divorce or loss of pension income. Form SSA-44 lets you report those life-changing events and ask for a lower premium based on the current year's income instead.

When one couple takes the lump sum and the other takes installments

Consider two couples born in the same year, both at retirement. Andre and Gwen, 65 and 63 (hypothetical, round numbers), receive his $800,000 deferred comp balance as one lump sum the following year when he is 66 and Gwen is 64. Add $100,000 of other income and their joint MAGI that year is $900,000. Two years later both are on Medicare all year, and the $750,000-and-above tier sets each premium at $689.90 instead of $202.90. That's $487 extra per person monthly, $974 for the couple and $11,688 for the year.

A twin couple with the only difference being a 10-year installment election reports $180,000 in combined MAGI that year—$80,000 from the installment plus $100,000 from other sources. They stay under the $218,000 first tier and pay no surcharge. Look at the table to spot the jumps: moving from the base tier to the first surcharge tier costs $1,949 a year, each of the next three steps adds about $2,921, and the last step, from $410,001–$749,999 to $750,000 and above, adds only $977.

A third scenario: another couple retires at 58 and 56 and takes a lump sum at 59. Neither is on Medicare two years later, so the IRMAA cost is zero. Their real worry is being an unsecured creditor if the employer is acquired. A payout Andre received today at 52 would also cost no IRMAA because neither spouse would be on Medicare yet. That's why the timing of both events—the payout and Medicare enrollment—has to line up to matter.

In a year when MAGI will be high and set premiums two years later, Scotia Wealth Management prioritizes where to draw cash. Pay large expenses from cash reserves, Roth account money or taxable investment lots with high cost basis, and delay selling low-basis company shares until a year that stays under a tier or a year before age 63. Before suggesting a change to an existing election, the team totals the MAGI each payout year would produce. If the current schedule already stays under the first tier, the election stays as it is.

What happens if the deferred comp election form is wrong?

An election form never completed at enrollment leaves the plan's default in place, and in many plans that default is a lump sum at separation. For a couple like Andre and Gwen, that can mean $11,688 of extra Part B premiums in one year plus income tax at the top federal rate of 37 percent on roughly $800,000—likely $250,000 or more.

Undoing it requires a 409A re-election filed at least 12 months before the payment, which must push it at least five years later. Once retirement is less than a year away, that's usually impossible.

Other mistakes are easier to make. Landing just $1,000 over a tier—joint MAGI of $219,000 instead of $218,000—costs $1,949 in extra premiums that year. Selling $150,000 of low-basis company shares in a $180,000 installment year lifts MAGI to $330,000, landing in the $274,001–$342,000 tier and costing $4,870. And a couple counting on Form SSA-44 to erase a lump sum paid after retirement will usually be disappointed: the work stoppage happened before the payout year, so it didn't reduce that year's income, and SSA generally keeps the surcharge.

Bring these questions to your plan administrator, CPA and financial advisor.

• What is the plan's default payout if no election is on file, and what is the last date to change it?
• Does the six-month specified-employee delay move the first payment into a different calendar year?
• For the CPA: What joint MAGI will each return from age 63 onward show, and does filing status change if one spouse dies?
• For the advisor: Which accounts should pay spending in each lookback year?

Your payout years and Medicare: the question for Scotia Wealth Management

In which calendar year does each deferred comp payment land, and what joint MAGI will that year show two years before each of you is on Medicare? Bring the plan's distribution election confirmation to the conversation so the answer is based on what's actually on file, not what you remember.