IRMAA and Medicare Planning for Private Equity Professionals

A single PE carry distribution can push your Medicare premiums up by nearly $7,000 per year — two years after you received it. Most PE partners don't discover the IRMAA problem until the surcharge letter arrives. This guide explains the mechanics, shows the full 2026 bracket table, and covers six strategies to reduce or eliminate excess surcharges. Not tax, legal, or medical advice; your specific facts control.

Why PE professionals face outsized IRMAA exposure

IRMAA — the Income-Related Monthly Adjustment Amount — is a Medicare surcharge applied to Part B (medical) and Part D (prescription drug) premiums for beneficiaries above certain income thresholds. For most retirees with steady pension or investment income, IRMAA is predictable and manageable. For PE professionals, it's a trap hidden in plain sight.

The problem is timing. Carried interest distributions are lumpy: a PE partner may have $0 in carry income for three years, then receive $5M–$20M in a single year when a fund exit closes. That spike year pushes MAGI to the highest IRMAA tier. Two years later — when the partner may have retired with much lower income — Medicare bills them at the maximum surcharge based on that old carry year. A $5M carry distribution in 2024 results in paying maximum-tier IRMAA in 2026, even if the partner's 2026 income is only $100,000.

How IRMAA works: the mechanics

The two-year lookback

For any given year, SSA determines your IRMAA using the most recent tax return available from the IRS — typically two years prior.¹ For 2026, SSA uses your 2024 MAGI. For 2027, it will use your 2025 MAGI. The delay exists because tax returns filed in April 2025 aren't fully processed and transmitted to SSA until mid-year.

MAGI for IRMAA purposes

IRMAA uses a specific MAGI definition: AGI plus tax-exempt interest income.² Key implications for PE professionals:

• Carry distributions count, even at LTCG rates. A long-term gain carry distribution enters AGI at line 7 of Schedule K-1 and flows to your Form 1040. It's fully included in MAGI regardless of the 23.8% capital gains rate.
• Municipal bond interest gets added back. Tax-exempt interest is added to AGI for IRMAA purposes. Buying more munis to reduce taxable income does not reduce IRMAA MAGI.
• QSBS excluded gain does NOT count. Gain excluded under IRC § 1202 doesn't enter gross income or AGI — so it doesn't push IRMAA. This is one reason the post-OBBBA $15M exclusion is especially valuable: it both eliminates federal tax and keeps the excluded amount out of IRMAA MAGI.
• Roth conversions count. A Roth conversion is a taxable distribution that enters AGI. Doing a Roth conversion in the same year as a large carry distribution compresses two MAGI spikes into one year and may push a second year's IRMAA to a higher tier than necessary.

The cliff effect

IRMAA operates in discrete tiers, not a smooth curve. Crossing a threshold by $1 means paying the full surcharge for that tier for the entire year. A PE professional whose 2024 MAGI was $205,001 — $1 over the Tier 4 single-filer threshold — pays Tier 5 surcharges in 2026 ($649.20/month total Part B), not the Tier 4 amount. The cliff makes threshold proximity planning valuable even for small income adjustments.

2026 IRMAA bracket table

Single, Head-of-Household, or Qualifying Surviving Spouse

Married Filing Jointly

Part B base premium: $202.90/month for 2026 per CMS.³ IRMAA tiers per SSA POMS HI 01101.020 (December 2025).¹ Annual IRMAA amount = monthly Part B surcharge × 12 + monthly Part D surcharge × 12. If one spouse is on Medicare and one is not, only the Medicare-enrolled spouse's premium is affected.

PE-specific worked example

A PE partner (single filer, age 65, retired in 2025) received a $4.8M fund exit carry distribution in 2024. His 2024 MAGI was $5.1M. His 2025 and 2026 income dropped to $120,000 (investment income, no carry). Here's how IRMAA affects him:

The $6,936 IRMAA spike is a one-year hit — a nuisance, not a disaster. But if the partner retired with annual investment income near a tier threshold, proactive planning in 2024 could have shifted income below it. The window to act closes when the return is filed.

Six strategies to reduce IRMAA exposure

1. Don't stack Roth conversions with carry distributions

Each dollar of Roth conversion adds to MAGI in the conversion year. A PE partner who does a $500,000 Roth conversion in the same year as a $6M carry distribution adds $500,000 to an MAGI that is already in the highest IRMAA tier — creating no IRMAA benefit at all (they're already at the ceiling) while the conversion itself still makes sense from a long-term tax perspective. A better strategy: do large Roth conversions in lean years — the year before an expected carry distribution, or during a quiet patch between fund vintages — when MAGI is well below the highest IRMAA tier.

2. Use qualified charitable distributions (QCDs) to reduce MAGI

Starting at age 70½, PE professionals who have rolled carry-year income into IRAs can use QCDs — direct transfers from an IRA to a qualified charity — to reduce MAGI dollar-for-dollar.⁴ A $50,000 QCD reduces MAGI by $50,000 without flowing through AGI, unlike an itemized charitable deduction which reduces taxable income but not MAGI for IRMAA. The 2026 QCD limit is $111,000 per taxpayer per year. For partners near an IRMAA threshold, a well-timed QCD can shift them to a lower tier and save hundreds per month in premiums.

3. Accelerate QSBS dispositions rather than carry in high-income years

If you hold qualifying small business stock (§ 1202 QSBS) and are facing a large carry year, recognizing the QSBS gain in the same year as the carry distribution doesn't increase IRMAA MAGI — excluded QSBS gain doesn't enter AGI. A PE professional who also has QSBS gain to recognize can sequence the QSBS recognition alongside a carry distribution year without IRMAA consequences, saving the lower-MAGI years for Roth conversions and other income-recognition decisions that do affect IRMAA.

4. Spread LP secondary sale proceeds

PE professionals considering a secondary sale of LP interests (see the LP secondary sale guide) can sometimes structure the sale as an installment sale under IRC § 453, recognizing gain across multiple years. Spreading a $3M gain over three years may keep MAGI below the highest IRMAA tiers in each year rather than spiking MAGI once. The tradeoff: § 453 installment sales are not available for publicly-traded partnership interests and require the buyer to agree to the installment structure.

5. Appeal IRMAA when income drops after retirement

The most actionable strategy for recently retired PE professionals: appeal IRMAA using SSA Form SSA-44.⁵ When income drops due to a qualifying life-changing event, SSA can use more recent income data rather than the two-year-old return that triggered the surcharge. Qualifying events include:

• Work stoppage — retirement from the PE firm qualifies. A PE partner who retired in 2025 can appeal 2026 IRMAA to reflect 2025 income rather than 2024's distribution year.
• Work reduction — moving from full GP to advisory/retired GP role with lower income may qualify.
• Loss of income-producing property — relevant if a fund write-off reduced income.

The appeal process requires documentation of the event and an estimate of current-year income. SSA processes these relatively quickly. A successful appeal can eliminate several thousand dollars of excess annual premium during the first years after retirement.

6. Sequence carry distribution timing with Medicare enrollment

For PE partners who have not yet enrolled in Medicare, IRMAA can be partially managed by being strategic about carry distributions relative to the Medicare enrollment year. A partner who turned 65 in 2025 but deferred Medicare enrollment (possible if still on employer-sponsored coverage) can time their carry distributions to fall in years when they're not yet on Medicare — or coordinate with their fund's distribution schedule. This requires coordination with the fund's general counsel and may not always be feasible, but for partners with flexibility in a fund's distribution timing, it's worth raising.

IRMAA and the PE retirement transition

Most PE partners retire between ages 58 and 68 — the same window when Medicare enrollment becomes relevant. The financial planning challenge is that the years just before and after retirement are often the years of largest carry distributions (fund maturation, final exits, catch-up distributions). The carry income that defines the final years of a PE career creates exactly the IRMAA exposure that affects the first years of Medicare coverage.

A PE-specialist financial advisor models this proactively: tracking expected fund distribution timelines, mapping MAGI across the retirement transition window, sequencing Roth conversions and charitable giving in the low-income years, and filing the Form SSA-44 appeal in the first year of Medicare enrollment if income has dropped. Generalist advisors who don't understand K-1 carry taxation often miss this planning entirely.

For the broader retirement income planning picture, see the Social Security planning guide, which covers SS benefit taxation in carry distribution years and optimal claiming age for high-net-worth PE professionals.