Modeling IRMAA Cliff Surcharges

ProjectionLab’s Optimize feature can help you plan around IRMAA, a surcharge added on top of your Medicare Part B and Part D premiums once your income crosses certain thresholds.

What Is IRMAA?

IRMAA (Income-Related Monthly Adjustment Amount) is a surcharge added on top of the standard Medicare Part B and Part D premiums for people whose income exceeds certain thresholds.

A few things worth knowing up front:

IRMAA is based on your Modified Adjusted Gross Income (MAGI) from two years earlier. Your 2026 Medicare premiums, for example, are based on your 2024 tax return.

Already on Medicare when your plan starts? ProjectionLab doesn’t have that prior income on file, so it estimates:

• Year 1 uses Year 1’s income.
• Year 2 uses the average of Year 1 and Year 2.
• Year 3 onward uses actual two-years-prior income, as normal.

The surcharge is applied in tiers. The higher your income, the higher the tier and the bigger the surcharge. Crossing into a higher tier by even $1 of MAGI applies the full surcharge for that tier – there’s no partial or prorated amount. This is why it’s often called a “cliff” rather than a gradual increase.

Setting an IRMAA Cliff Target

From your plan, go to Optimize (between Compare and Reports) and choose Tax Strategy. From here you can start a new strategy, choose a common strategy, or run Optimize to test multiple strategies. This article covers building your own.

Select New Strategy. On the Choose your target screen, pick IRMAA Cliff. This sits alongside a few other target types:

• Tax Bracket – fill an income tax bracket each year.
• ACA/FPL – keep income below a Federal Poverty Level multiple to preserve ACA premium subsidies.
• Income Target – set a specific income target.

Selecting IRMAA Cliff takes you to Define your strategy, where you’ll choose which tier to stay below. Click into the dropdown – it defaults to Cliff 1, No Surcharges – to see the available options:

Cliff 1 keeps you entirely clear of any surcharge. Each tier after it allows more income in exchange for a bigger monthly surcharge. Cliff 5 allows significantly more income – useful if a large one-time Roth conversion is unavoidable – but comes with the highest surcharge on the list. Click Continue.

Add Constraints

On the Add constraints screen, you can optionally layer on additional guardrails alongside your IRMAA Cliff target:

• Capital Gains Bracket – stay within a specific capital gains tax bracket.
• Avoid NIIT – cap investment income to avoid the 3.8% net investment income tax.
• Preserve ACA Subsidies – cap income to preserve subsidies in years with ACA marketplace coverage. Opens its own dropdown, defaulting to 400% FPL, Subsidy Cliff. See How to Navigate ACA Premiums in ProjectionLab for more on how that subsidy is calculated.

These constraints are covered in detail in their own articles. Leave them all off and click Continue if IRMAA is your only concern for this strategy.

Enable Modules

The last step is Enable Modules, where you choose which strategy modules put your IRMAA Cliff target into action:

• Roth Conversions – convert from tax-deferred to Roth accounts to fill your target each year.
• Withdrawal Shielding – cap tax-deferred withdrawals at your target, shifting excess to tax-free sources.
• Gain Harvesting – realize capital gains at favorable rates to reset cost basis.

All three are enabled by default, and you can adjust them at any time. Click Create Strategy to finish.

Reviewing Your Strategy

Once you create your strategy, you’ll see a row of summary cards followed by a graph.

The cards show your Tax Strategy – your chosen Cliff target plus any enabled constraints – and one card each for Roth Conversions, Withdrawal Shielding, and Gain Harvesting, each marked Active with a small preview chart. Summary callouts below show the strategy’s overall impact, such as taxes saved or net legacy gained over the life of your plan, compared against your prior strategy.

A Targets dropdown controls what the graph plots:

• Targets – income vs. strategy targets and constraints
• Income
• Taxes
• Withdrawals

With Targets selected, your projected income (solid line) is plotted against your IRMAA Cliff threshold (dashed line), so you can see at a glance where your income sits relative to the cliff each year. Hover an event icon for that event’s details, or hover the line itself to compare your IRMAA MAGI against your cliff threshold for that year – useful for spotting how something like a home sale spikes MAGI above your chosen cliff.

Once you select a cliff, Optimize treats it as a constraint, keeping your projected MAGI at or below that tier when suggesting Roth conversions, withdrawal order, and other tax moves, rather than letting a large conversion or gain push you into a costlier tier.

Why This Matters for Planning

Since IRMAA looks back two years, a single high-income event – a large Roth conversion, a big capital gain, or selling a home – can trigger a surcharge two years later, even if your income drops back down right after.