Does Inheritance Affect Medicare Premiums?
Understand if and how an inheritance might affect your Medicare premiums. Get clear answers on income's role in healthcare costs.
Medicare is a federal health insurance program primarily for individuals aged 65 or older, though younger people with certain disabilities or end-stage renal disease may also qualify. While Medicare Part A (hospital insurance) is often premium-free for those who have paid Medicare taxes for a sufficient period, Medicare Part B (medical insurance) and Part D (prescription drug coverage) typically involve monthly premiums. These premiums are not uniform for everyone; they can vary based on an individual’s financial situation. Understanding how income influences these costs is important for beneficiaries planning their healthcare expenses.
Understanding Medicare Premium Calculation
Medicare Part B and Part D premiums are determined in part by a beneficiary’s income. Individuals with higher incomes may pay an additional amount on top of their standard premiums, known as the Income-Related Monthly Adjustment Amount, or IRMAA. IRMAA aims to ensure that those with greater financial resources contribute a larger share to the Medicare program’s costs. This surcharge applies to both Original Medicare (Parts A and B) and Medicare Advantage plans that include Part B coverage, as well as standalone Part D plans.
The Social Security Administration (SSA) calculates IRMAA based on Modified Adjusted Gross Income (MAGI). For Medicare purposes, MAGI is generally defined as your Adjusted Gross Income (AGI) plus any tax-exempt interest income. The SSA obtains this income information directly from tax returns filed with the Internal Revenue Service (IRS).
Higher MAGI levels correspond to higher IRMAA surcharges, creating a tiered system for premiums. For example, for 2025 Medicare premiums, the SSA typically reviews your 2023 tax return data. If your MAGI exceeds certain thresholds, you will pay an increased premium for both Medicare Part B and Part D. For instance, in 2025, a single filer with a 2023 MAGI above $106,000, or a married couple filing jointly with a MAGI above $212,000, would be subject to IRMAA.
Inheritance and Modified Adjusted Gross Income
The direct inheritance of assets, such as cash, real estate, or non-retirement investment accounts, typically does not count as taxable income for federal purposes. This means the principal amount of an inheritance, like a cash bequest, usually does not directly add to your Modified Adjusted Gross Income (MAGI) for Medicare premium calculations.
However, income generated from inherited assets after you receive them is generally considered taxable income and will contribute to your MAGI. This includes interest earned on inherited bank accounts, dividends from inherited stocks, or rental income from inherited properties. If you sell inherited assets, such as stocks or real estate, and realize a capital gain (the sale price exceeds the asset’s value at the time of inheritance), that gain is taxable and included in your MAGI.
Withdrawals from inherited pre-tax retirement accounts, such as traditional IRAs or 401(k)s, are also considered taxable income at the time of distribution. These distributions would increase your MAGI in the year they are taken. While the initial inheritance itself may not be taxed as income, the subsequent earnings or distributions from those inherited assets can impact your Medicare premiums.
How Income Changes Affect Premiums
The Social Security Administration (SSA) uses a two-year lookback period to determine your Medicare Part B and Part D premiums, including any IRMAA. This means that the premiums you pay in a given year are based on your Modified Adjusted Gross Income (MAGI) from two years prior. For instance, your 2025 Medicare premiums are based on your 2023 tax return information.
If your income has significantly decreased due to certain life-changing events, you may be able to request a re-evaluation of your IRMAA. Recognized life-changing events include marriage, divorce or annulment, death of a spouse, work stoppage, or reduction in work hours. Other events like the loss of income-producing property or a reduction in pension income may also qualify.
To request an adjustment, beneficiaries can submit Form SSA-44, “Medicare Income-Related Monthly Adjustment Amount – Life-Changing Event,” to the SSA. This form requires providing evidence of the qualifying life-changing event and an estimate of your reduced income. The SSA will then review your current income and potentially adjust your Medicare premiums for the current year.