How to Calculate Your Modified Adjusted Gross Income for IRMAA in 2025

Understanding how your income affects your Medicare premiums is crucial, especially when it comes to IRMAA. Your Modified Adjusted Gross Income (MAGI) determines whether you’ll pay additional surcharges on top of your standard Medicare Part B and Part D premiums. Here’s a guide on calculating your MAGI for IRMAA in 2025.

What is MAGI?

MAGI stands for Modified Adjusted Gross Income. It’s your total adjusted gross income (AGI) with certain deductions added back. The SSA uses your MAGI from two years prior to determine if you owe IRMAA. The purpose of calculating MAGI is to get a more accurate representation of your financial situation, ensuring that higher-income individuals contribute more to the Medicare program.

Components of MAGI

To calculate your MAGI, you need to consider the following components:

• Adjusted Gross Income (AGI): This is your gross income minus any above-the-line deductions, such as contributions to retirement accounts, certain business expenses, and student loan interest.
• Tax-Exempt Interest Income: Add any tax-exempt interest income you received, such as interest from municipal bonds.
• Deductions: Add back certain deductions, such as tuition and fees, student loan interest, and IRA contributions.

Calculating MAGI for 2025

For 2025 IRMAA calculations, you need to use your 2023 income data. Here’s an example of how to calculate your MAGI:

1. Determine Your AGI: Start with your AGI from your 2023 tax return. This is the figure on the last line of the first page of your Form 1040.
2. Add Tax-Exempt Interest: Include any tax-exempt interest income you earned in 2023. This information can be found on your 1099-INT or 1099-DIV forms.
3. Add Back Specific Deductions: Add back deductions such as IRA contributions, tuition and fees, student loan interest, and any other above-the-line deductions you took.

Your MAGI = AGI + Tax-Exempt Interest + Deductions Added Back

Why MAGI Matters

Your MAGI determines whether you’ll pay IRMAA surcharges on your Medicare premiums. Keeping your MAGI below the IRMAA thresholds can help you avoid additional costs. Understanding how to calculate your MAGI can also help you plan your income and expenses more effectively.

Strategies to Manage MAGI

Here are some strategies to help manage your MAGI and potentially avoid IRMAA:

• Roth Conversions: Convert traditional IRA assets to a Roth IRA to manage future taxable income. This can help you reduce your MAGI in retirement years since Roth IRA withdrawals are generally tax-free.
• Qualified Charitable Distributions (QCDs): If you’re 70½ or older, consider making charitable donations directly from your IRA. QCDs can reduce your taxable income and potentially lower your MAGI.
• Tax-Efficient Withdrawals: Be strategic about when and how you withdraw money from taxable accounts. For example, you could spread out your withdrawals over several years to avoid large spikes in income.
• Municipal Bonds: Invest in municipal bonds, which generate tax-exempt interest income. This can help reduce your overall taxable income, though you still need to add this interest back when calculating MAGI.

Tax Planning Considerations

Effective tax planning can help you manage your MAGI and avoid IRMAA surcharges. Here are some additional tax planning considerations:

• Harvesting Tax Losses: Consider selling investments at a loss to offset gains and reduce your taxable income. This strategy, known as tax-loss harvesting, can help you stay below IRMAA thresholds.
• Timing of Income: Plan the timing of income events, such as the sale of a business or receipt of a large bonus, to avoid pushing your MAGI above the IRMAA thresholds in any given year.
• Income Deferral: If possible, defer income to future years when your overall taxable income may be lower. This could help you stay below the IRMAA thresholds.

Monitoring Your Income

Regularly monitoring your income is crucial for managing your MAGI. Keep track of all your income sources, including wages, pensions, Social Security benefits, and investment income. Use tax software or consult with a tax professional to help you stay on top of your income and deductions throughout the year.

Example Calculation

Let’s go through an example calculation to illustrate how to determine your MAGI:

1. AGI Calculation: Suppose your AGI for 2023 is $95,000. This includes wages, retirement account distributions, and investment income.
2. Tax-Exempt Interest: You have $5,000 in tax-exempt interest from municipal bonds.
3. Deductions: You deducted $2,000 in IRA contributions and $1,000 in student loan interest.

MAGI Calculation:

• AGI: $95,000
• Add Tax-Exempt Interest: $5,000
• Add Back Deductions: $3,000

Your MAGI = $95,000 + $5,000 + $3,000 = $103,000

Since your MAGI is $103,000, you fall below the 2025 IRMAA threshold of $106,000 for individuals, and you would not owe an IRMAA surcharge.

Conclusion

Calculating your MAGI is essential for understanding your potential IRMAA liability. By knowing how to calculate your MAGI, you can better manage your income and plan for any additional Medicare costs. Regular monitoring and strategic planning can help you avoid IRMAA surcharges and maintain your financial well-being in retirement.

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About the Author

Matt Feret is the author of the Prepare for Social Security – The Insider’s Guide and the Prepare for Medicare – The Insider’s Guide book series and launched PrepareforSocialSecurity.com and PrepareforMedicare.com to help people get objective answers to questions about Social Security and Medicare. Matt is also the host of The Matt Feret Show. He has held leadership roles at numerous Fortune 500 Medicare health insurers in sales, marketing, operations, product development, and strategy for over two decades.