Permanently Avoid IRMAA Surcharges with Portfolio Asset Allocation Changes 2026

You have probably spent years obsessing over Asset Allocation—how much stock vs. bond exposure you have. That is important for growth. But in retirement, there is a silent killer of wealth that allocation doesn’t solve: Asset Location.

Here is the reality I’ve seen in 25 years of financial planning: You can have the perfect mix of investments, but if they are in the “wrong” accounts, you are volunteering for higher taxes and massive Medicare (IRMAA) surcharges.

The problem is simple: Investment income (interest, non-qualified dividends, and capital gains distributions) flows onto your tax return, increasing your Modified Adjusted Gross Income (MAGI). If that number crosses a specific threshold, your Medicare premiums skyrocket.

2026 IRMAA Brackets: The Exact Numbers You Need to Know

For 2026, the standard Medicare Part B premium is $202.90 per month (up from $185 in 2025), with an annual deductible of $283. These numbers are set by CMS each fall and apply to most Medicare beneficiaries.

However, if your Modified Adjusted Gross Income (MAGI) from two years prior exceeds certain thresholds, you’ll pay an Income-Related Monthly Adjustment Amount (IRMAA) surcharge on top of the standard premium. For 2026, IRMAA is based on your 2024 tax return.

2026 IRMAA Income Brackets

For Single Filers, Head of Household, or Qualifying Surviving Spouse:

MAGI ≤ $109,000: Standard premium of $202.90/month
MAGI $109,001 – $137,000: Total premium $284.10/month ($81.20 surcharge)
MAGI $137,001 – $171,000: Total premium $405.80/month ($202.90 surcharge)
MAGI $171,001 – $205,000: Total premium $527.50/month ($324.60 surcharge)
MAGI $205,001 – $499,999: Total premium $649.20/month ($446.30 surcharge)
MAGI ≥ $500,000: Total premium $689.90/month ($487.00 surcharge)

For Married Filing Jointly:

MAGI ≤ $218,000: Standard premium of $202.90/month
MAGI $218,001 – $274,000: Total premium $284.10/month ($81.20 surcharge)
MAGI $274,001 – $342,000: Total premium $405.80/month ($202.90 surcharge)
MAGI $342,001 – $410,000: Total premium $527.50/month ($324.60 surcharge)
MAGI $410,001 – $749,999: Total premium $649.20/month ($446.30 surcharge)
MAGI ≥ $750,000: Total premium $689.90/month ($487.00 surcharge)

These brackets are inflation-adjusted annually by CMS and published each November. IRMAA operates on a “cliff” system—meaning even $1 over a threshold triggers the full surcharge for that bracket. This is why strategic asset location and income planning are critical for avoiding these penalties.

Understanding MAGI for IRMAA

Modified Adjusted Gross Income (MAGI) for IRMAA purposes is calculated as your Adjusted Gross Income (AGI) from line 11 of Form 1040, PLUS any tax-exempt interest (such as municipal bond income) from line 2a. Note that only the taxable portion of Social Security is included in AGI—not the full amount.

In addition to Part B surcharges, high-income beneficiaries also pay IRMAA surcharges on Medicare Part D prescription drug coverage, ranging from $14.50 to $91.00 per month in 2026 using the same income brackets.

Source: Official 2026 Medicare premiums and IRMAA brackets are published by the Centers for Medicare & Medicaid Services (CMS) and verified by the Social Security Administration. For complete details, see the CMS 2026 Medicare Parts A & B Premiums fact sheet, Medicare.gov 2026 costs, and SSA POMS HI 01101.010 regarding MAGI calculations.

The solution: Strategic Asset Location. It’s the art of placing high-tax assets in tax-sheltered accounts so their “noise” never hits your tax return—or your IRMAA calculation.

⚡ Asset Location at a Glance

The Goal: Place assets that generate “tax noise” (interest, dividends) into accounts where that income is invisible to the IRS and Medicare.
The Trap: Holding high-yield bonds or REITs in a taxable brokerage account increases your MAGI, potentially triggering an IRMAA surcharge.
The Muni Bond Myth: Tax-exempt interest is free from federal tax, but it is added back for IRMAA calculations. It is not a cure-all.
The Strategy: Use your IRA for yield, your Roth for growth, and your Brokerage for tax-efficient index funds.

Key Takeaways Ahead

The Logic: Why Investment Portfolio “Yield” is the Enemy of IRMAA

To the IRS and Medicare, not all money is created equal.

Growth (Price Appreciation): If you own a stock in a brokerage account and it goes up 20%, your MAGI does not change. You control when you sell and realize that gain.
Yield (Interest/Dividends): If you own a bond fund that pays 5% interest, that money hits your tax return every single year, whether you spend it or reinvest it. You have zero control.

For a retiree on the edge of an IRMAA cliff, “uncontrollable income” is dangerous. By moving those income-generating assets into an IRA (where growth is tax-deferred) or a Roth IRA (where it’s tax-free), you effectively hide that income from the IRMAA calculation until you choose to withdraw it.

The Asset Location Blueprint

This table shows where you should locate specific assets to minimize the impact on your MAGI and Medicare premiums.

Asset Type	Tax Profile	Best Location	Why? (IRMAA Impact)
Taxable Bonds / Bond Funds	Interest taxed at ordinary income rates.	Traditional IRA / 401(k)	Shields interest from AGI. Prevents annual income creep.
REITs (Real Estate)	High dividends, often non-qualified (taxed as ordinary income).	Traditional IRA / Roth IRA	Prevents large, mandatory dividend distributions from spiking MAGI.
High-Growth Stocks	Long-term capital gains (lower rates).	Roth IRA	Massive growth happens tax-free. No RMDs to force income later.
Index Funds / ETFs	Tax-efficient, low turnover.	Taxable Brokerage	You control when to sell. Qualified dividends get lower tax rates.
Municipal Bonds	Federally tax-free.	Taxable Brokerage	WARNING: Interest is added back for IRMAA MAGI.

The Municipal Bond IRMAA Trap (Warning)

Many retirees flock to Municipal Bonds (“Munis”) because the interest is free from federal income tax. They assume this helps with IRMAA.

It does not.

IRMAA is calculated using MAGI (Modified Adjusted Gross Income). The “Modified” part means you must add back any tax-exempt interest (Line 2a on your Form 1040).

⚠️ Michael Ryan Money Warning: I once reviewed a portfolio for a client who moved $500,000 into Muni bonds to “lower his taxes.” He lowered his income tax, yes. But because that interest was added back to his MAGI, he stayed in a higher IRMAA tier, costing him and his wife over $4,000 in premiums.

💡 Stop Making Costly Tax & IRMAA Mistakes

One clear financial move each week — straight from 28 years of seeing what goes wrong.

→ Uncover the hidden fees and tax traps in your portfolio.
→ Simple, high-impact strategies like the Asset Location Blueprint.
→ Practical steps to reduce RMDs and lower Medicare premiums.

Get money moves like this delivered every week — before the costly mistakes happen.

f 𝕏 in

📬 No spam. Unsubscribe.

Strategy in Action: Investment Account Sequencing to Avoid IRMAA

Asset Location is only half the battle. You must also withdraw the money in the right order. This is called Account Sequencing.

To keep your MAGI smooth and avoid cliffs, you want to “fill up” the lower tax brackets with taxable withdrawals (like Traditional IRA distributions) and then “top off” your spending needs with tax-free money.

The Baseline: Take your RMDs first (you have no choice).
The Filler: Withdraw from Traditional IRAs until you hit the top of your target tax bracket (or the IRMAA cliff).
The Capstone: If you need more cash for a new car or a trip, pull it from your Roth IRA or Cash Savings. These withdrawals do not increase your MAGI, so they are invisible to Medicare.

This is why having a Retiree Asset Allocation that spans all three account types (Taxable, Tax-Deferred, Tax-Free) is critical. It gives you control.

Frequent Reader Questions About Asset Location

📚 Master Your Retirement Income

Asset location works best when paired with these strategies:

Financial Advisor Reveals Roth IRA Conversions Secrets – How to move money from “Tax-Deferred” to “Tax-Free” to permanently lower your RMDs.
2025 RMD Calculator & IRS Rules – Estimate the “uncontrollable income” you will face at age 73.

Does shifting assets trigger taxes?

It can. If you sell an asset in a taxable brokerage account to move it to an IRA (which you can only do via contributions), you will realize capital gains taxes on the sale. Asset location is easiest to implement with new moneyor within tax-advantaged accounts where trading doesn’t trigger taxes.

Should I put all my bonds in my IRA?

Generally, yes, but not always all of them. You still need some liquidity in your taxable account for emergencies. For that, consider I-Bonds or a savings account. Check out our guide on Understanding Series I Savings Bonds for a tax-efficient, inflation-protected option.

Does dividend reinvestment affect IRMAA?

Yes. Even if you automatically reinvest dividends in a taxable account, the IRS counts that as income received in the year it was paid. This increases your MAGI. In an IRA or Roth IRA, reinvested dividends are invisible to the IRS.

Conclusion: Control What You Keep

You cannot control the stock market. You cannot control Congress. But you can control where your assets live.

By practicing smart Asset Location, you turn your portfolio into a tax-efficient machine. You shield your income from the IRS, you keep your MAGI low, and you protect your Social Security check from IRMAA surcharges.

Your Next Steps:

Audit your Taxable Brokerage Account. Are there high-yield bonds or REITs generating taxable income you don’t need yet?
Review your IRA/401(k). Is it holding high-growth stocks that will turn into massive RMDs later?
Consider a strategic rebalance to move “noisy” assets into “quiet” accounts.

If you are unsure where you stand, use our Net Worth Calculator to inventory your accounts and start sorting your assets today.