What is IRMAA?

Have you ever heard of the term: IRMAA (Income-Related Monthly Adjusted Amount)? Chances are you may not - unless you are currently enrolled in Medicare Part B or in Medicare Part D prescription drug coverage. IRMAA is the monthly surcharge on Medicare B and D premiums based on the recipient’s income. If you are subject to IRMAA, the cost of your health care premiums in retirement can be significantly higher than you may have expected. The surcharge amounts are adjusted every year for inflation.

For most Medicare recipients, the monthly Part B premium = $174.70 (and if applicable, Part D premium = $55.50) in 2024. This assumes your 2022 income was under $103K (individual return) or under $206K (joint return). But if your 2022 income was higher, your 2024 premiums are also higher due to IRMAA. This can be a significant amount and an unwelcome surprise.

How is IRMAA calculated?

IRMAA is calculated on a sliding scale with five income brackets (up to $500K for individuals; up to $750K for joint taxpayers). The higher the MAGI (Modified Adjusted Gross Income), the higher the IRMAA. There are no phaseout ranges. If you have MAGI that is just $1 over the limits, you will have to pay the full extra amount. In 2024 Medicare recipients will pay a total monthly premium amount - with IRMAA - ranging from $244.60 to $594.00 depending on your income. Part B IRMAA is automatically added to your monthly premium, but Part D IRMAA must be paid directly to Medicare.

IRMAA status can change each year - if your income is higher or lower than prior years. Your 2025 Medicare premiums will be based on 2023 income tax returns and determine whether you must pay an IRMAA surcharge in 2025.

A one-time spike in income (due to a Roth conversion, large capital gains or other events) could trigger the IRMAA. Required Minimum Distributions (RMDs) can also result in much higher Medicare/ healthcare costs with the IRMAA surcharge. RMDs are included in MAGI which is used to determine your Medicare Part B and Part D costs.

If the Social Security Administration (SSA) determines you must pay IRMAA, the SSA will mail a notice called an Initial Determination. The notice includes instructions on how to request a new Initial Determination - a revised decision that SSA might make regarding your IRMAA. You must submit a Medicare IRMAA Life-Changing Event form or schedule an appointment with the SSA. Documentation is required (your correct income or details about the life-changing event(s) that caused your income to decrease). Reasons recognized by the SSA for a possible revision include:

· Death of a spouse, marriage, divorce, or annulment

· Retirement, or a reduction in the number of hours you or your spouse worked

· Involuntary loss of income-producing property due to a natural disaster, disease, fraud, or other circumstances

· Loss of pension income

· Receipt of settlement payment from a current or former employer due to the employer’s closure or bankruptcy

If you do not qualify to request a new initial determination, but still disagree with SSA’s decision, you have the right to appeal the IRMAA.

Is there a way to avoid the IRMAA surcharge?

It is possible to avoid or reduce IRMAA surcharges by using one of two strategies:

· Roth IRA Conversions

Eliminating RMDs from traditional IRAs (and other pre-tax retirement plans) by converting to a Roth IRA will minimize the impact of RMDs on your Medicare costs. If possible, execute Roth conversions in your late 50’s or early 60’s - before income from the Roth conversions affect your MAGI for Medicare purposes. Income in the year you turn 63 impacts IRMAA brackets in the year you turn 65. RMDs are not required from Roth IRAs during the Roth owner’s lifetime. Qualified Roth IRA distributions are not included in MAGI for Medicare purposes.

· Qualified Charitable Distributions (QCD)

If you are already taking RMDs, a qualified charitable distribution (QCD) can minimize the impact of IRA RMDs on Medicare costs. With a QCD, you can transfer up to $105,000 annually from your IRA to charity tax-free. A QCD can satisfy your RMD for the year and it is not included in MAGI for determining Medicare costs, and can result in big savings. Take note: if you take your RMD and then donate the funds to a charity and claim a charitable deduction, the RMD would still be included in MAGI.

It is important to learn how certain financial decisions related to your income may impact your future Medicare premiums - and to consider employing strategies to reduce your MAGI whenever possible - once you are enrolled in Medicare.

If you are not currently working with FPS, we would be happy to talk with you. Questions? We are here to help.

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Best regards,

Janet Rhodes Friedman, CFP®, CDFA®, MBA Janet@PlanWithFPS.com

617-630-4978

Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.