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Do you know how many federal income tax brackets there are? Seven, strictly speaking, with the lowest-earners paying 10% on income in the first bracket and the highest-earners paying 37% in the top bracket.

Financial advisors often consider these brackets as clients amass wealth, but things get much more complicated when it comes to optimal retirement income planning, says Stuart Ritter, insights director at T. Rowe Price. Getting the most out of clients’ accumulated nest eggs requires consideration of 16 de facto tax brackets. The added complexity stems from five-tiered Medicare surcharges, potential taxes on Social Security benefits and more. It’s not easy for advisors to master retirement income planning, Ritter said, but those who do can help clients keep more of their hard-earned wealth.

“The good news for advisors today is that they can rely on some powerful tools and calculators to help address the complexity,” Ritter told Retirement Upside. “Income planning is complex, but it’s not as difficult as it once was when you had to do everything by hand with a calculator.”

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For clients on Medicare, proactively managing their income to minimize the program’s Income-Related Monthly Adjustment Amount is critical. Often abbreviated as IRMAA, it’s an escalating surcharge Medicare adds to clients’ Part B and Part D premiums when their income exceeds progressive thresholds.

IRMAA isn’t a penalty, Ritter explained, but rather a pricing structure that ties higher incomes to higher premium costs. If the client’s income stays below the first threshold, they’ll pay standard premiums and nothing more, but even going one dollar over a threshold can trigger significant additional costs. 2026 IRMAA brackets are based on 2024 income and apply at the following income levels:

Tier 1 surcharges apply between $109,001 and $137,000 ($218,001 to $274,000 joint), triggering $81.20 in added monthly Part B premiums and $14.50 for Part D.

Tier 5, the highest, applies when income reaches $500,000 ($750,000 joint), adding $487.00 in Part B premiums and $91.00 for Part D.

Separately, Social Security taxes apply when a client’s adjusted gross income plus nontaxable interest and half their benefit amount exceeds just $25,000 ($32,000 joint).

For affluent retired couples, IRMMA surcharges can approach $7,000 per year. Meeting these costs might not break the bank for a given retiree, Ritter said, but they can be surprising (and distressing) if not proactively addressed.

Ups and Downs. “Steering your clients wrong on this stuff is a great way to lose credibility,” Ritter said. However, advisors can help plan around the surcharges, for example by timing Roth conversions for lower-income years. “Real-world data shows us that retirees’ spending varies a lot over time, which gives us the opportunity to be very strategic when drawing income from tax-free, tax-deferred and taxable sources.”

This post first appeared on Retirement Upside. To receive actionable insights for financial advisors guiding clients through the strategies, products, and policy shifts shaping retirement outcomes, subscribe to our free Retirement Upside newsletter.