The COLA Illusion
Each January, the Social Security Administration announces the annual cost-of-living adjustment, or COLA. The intent is straightforward: offset inflation so beneficiaries maintain their purchasing power. In recent years, COLAs have ranged from 2.5% to 8.7%, reflecting the volatile post-pandemic economy.
On the surface, a COLA looks like a raise. Monthly benefit checks increase. But for retirees sitting near an IRMAA bracket threshold, this increase creates a less visible consequence. Social Security benefits are partially taxable, and the taxable portion counts toward Modified Adjusted Gross Income, the figure Medicare uses to determine IRMAA surcharges. A higher benefit means a higher MAGI contribution, which can push a retiree across a threshold they were previously just below.
The result: a cost-of-living "increase" that triggers a new surcharge costing more than the increase itself. One penny over the line costs you over $1,000 this year.
How Social Security Benefits Become Taxable
Many retirees assume their Social Security income is either fully taxable or fully exempt. The reality is more nuanced, and it matters for IRMAA.
The IRS uses a formula based on "combined income," which is your adjusted gross income plus nontaxable interest plus half of your Social Security benefits. Depending on where that combined income falls, up to 85% of your Social Security benefits may be counted as taxable income.
For single filers with combined income above $34,000, or joint filers above $44,000, the 85% threshold typically applies. Most Medicare beneficiaries who are anywhere near IRMAA territory are already in this range. That means for every additional dollar in Social Security benefits from a COLA, roughly $0.85 flows into taxable income and, by extension, into MAGI.
This is not a theoretical concern. It is the mechanical link between two government systems that were not designed to account for each other.
The Math: A COLA That Triggers IRMAA
The interaction between a modest COLA and an IRMAA cliff becomes clearest with a concrete example.
Example: A single filer has a MAGI of $107,500 in a given year, safely below the $109,000 IRMAA threshold. They receive a COLA that adds approximately $2,000 to their annual Social Security benefit. At the 85% taxable rate, that produces roughly $1,700 in additional taxable income, pushing their MAGI to approximately $109,200, past the $109,000.01 trigger.
The consequence: Tier 1 IRMAA activates. Part B increases by $81.20 per month. Part D adds a $14.50 per month surcharge. That totals $1,148.40 in new annual surcharges.
The net result: A $2,000 COLA produced roughly $1,700 in additional taxable income, but it triggered $1,148.40 in IRMAA surcharges. After accounting for the surcharge, the real value of the "raise" shrinks dramatically. Depending on the retiree's other income and tax obligations, the net benefit may be negligible or negative.
This is not an edge case. Any retiree whose MAGI sits within a few thousand dollars of a threshold faces a version of this math every year, because COLAs are cumulative. Each annual increase builds on the prior year's higher benefit amount.
Combined with RMDs: The Compounding Problem
At age 73, Required Minimum Distributions begin for traditional IRA and 401(k) holders. RMDs are fully taxable and count directly toward MAGI. For retirees who are already near an IRMAA threshold due to pension income, investment returns, or Social Security itself, the addition of RMDs can create a compounding cycle.
Consider this sequence: a retiree's Social Security benefit increases each year via COLA. Their IRA balance grows due to market returns, which means their annual RMD amount also increases. Both of these income sources feed into MAGI simultaneously. The combined effect can push a retiree into progressively higher IRMAA tiers year after year, even if their spending and lifestyle have not changed at all.
This dynamic is especially pronounced for retirees who deferred IRA withdrawals for as long as possible. A larger account balance at age 73 produces larger mandatory distributions, which compound the COLA-driven MAGI increase.
Who Is Most at Risk
The retirees most exposed to this interaction are those whose MAGI sits within $3,000 to $5,000 below any IRMAA threshold. At these margins, a single COLA adjustment, a slightly larger RMD, or a modest capital gain can push income past the cliff.
The table below shows the 2026 IRMAA thresholds for single and joint filers, along with the income range just below each cliff where a COLA-driven increase poses the greatest risk.
| IRMAA Tier | Single Filer Threshold | Danger Zone (Single) | Joint Filer Threshold | Danger Zone (Joint) |
|---|---|---|---|---|
| Tier 1 | $109,000.01 | $104,000 – $109,000 | $218,000.01 | $213,000 – $218,000 |
| Tier 2 | $137,000.01 | $132,000 – $137,000 | $274,000.01 | $269,000 – $274,000 |
| Tier 3 | $171,000.01 | $166,000 – $171,000 | $342,000.01 | $337,000 – $342,000 |
| Tier 4 | $205,000.01 | $200,000 – $205,000 | $410,000.01 | $405,000 – $410,000 |
| Tier 5 | ≥ $500,000 | $495,000 – $499,999.99 | ≥ $750,000 | $745,000 – $749,999.99 |
If your MAGI falls within any of these ranges, a COLA increase of even a few hundred dollars, after the taxable portion is calculated, may be enough to cross the line. The annual surcharge at each tier ranges from $1,148.40 (Tier 1) to $6,936.00 (Tier 5) per person.
The Net Loss Scenario
There is a real outcome where a retiree's IRMAA surcharge exceeds the value of their COLA increase. This is not hypothetical. It happens when the dollar amount of the COLA, after taxes, is smaller than the annualized surcharge it triggers.
A 2.5% COLA on a $24,000 annual Social Security benefit produces $600 in additional benefits. If 85% of that is taxable, it adds $510 to MAGI. For a retiree whose MAGI was $108,600 before the adjustment, that $510 pushes them to $109,110, past the $109,000.01 threshold. The resulting $1,148.40 annual surcharge is nearly double the entire COLA amount.
This is not a flaw that any individual retiree created. It is a consequence of two systems, Social Security and Medicare IRMAA, operating on different logic. Social Security adjusts benefits to offset inflation. IRMAA imposes surcharges based on income thresholds that do not move in lockstep with COLA increases. The gap between these two mechanisms is where borderline retirees get caught.
What You Can Do
While the COLA itself cannot be declined or deferred, several strategies may help manage the MAGI impact and reduce the risk of crossing an IRMAA threshold.
- Qualified Charitable Distributions (QCDs). For those age 70.5 and older, QCDs allow direct transfers from an IRA to a qualifying charity, up to $108,000 per year. The distributed amount satisfies the RMD requirement without counting toward MAGI, effectively removing that income from the IRMAA calculation.
- Tax-loss harvesting. Selling investments at a loss to offset capital gains can reduce MAGI in years where other income sources are pushing close to a threshold.
- Income timing. Depending on your situation, deferring a distribution, delaying the sale of an appreciated asset, or spacing Roth conversions across multiple years may help keep MAGI below a critical line in any single year.
- IRMAA surcharges as medical expenses. IRMAA surcharges may qualify as deductible medical expenses on Schedule A, for filers whose total medical costs exceed 7.5% of AGI. This does not eliminate the surcharge, but it may reduce overall tax liability.
Understanding exactly what counts toward MAGI is the first step. Municipal bond interest, Roth conversion amounts, and the taxable portion of Social Security all contribute, and many retirees are surprised by how quickly these sources add up. A detailed breakdown is available at MAGI Explained.
For a broader look at positioning strategies, including Roth conversion timing and distribution planning, see IRMAA Avoidance Strategies.
See Where You Stand
An IRMAA Report provides an estimated breakdown of your surcharge exposure based on current CMS-published thresholds. If your income is near a cliff, knowing where you stand is the first step toward managing the impact.
Get Your IRMAA Report: $25Sources
- Social Security Administration, "Cost-of-Living Adjustments," ssa.gov
- Internal Revenue Service, "Publication 915, Social Security and Equivalent Railroad Retirement Benefits," irs.gov
- Centers for Medicare & Medicaid Services, "2026 Medicare Parts A & B Premiums and Deductibles," cms.gov
- Social Security Administration, "Medicare Premiums: Rules for Higher-Income Beneficiaries," ssa.gov
- Internal Revenue Service, "Retirement Topics: Required Minimum Distributions (RMDs)," irs.gov