IRMAA Avoidance
IRMAA is an additional surcharge added to your Medicare Part B and Part D premiums based on your income. While it can add up to thousands of dollars in additional premiums each year, there are ways to reduce or even avoid IRMAA altogether.
What is IRMAA?
IRMAA is an extra charge on Medicare Part B and Part D premiums for individuals with higher incomes. The surcharge is determined by your modified adjusted gross income (MAGI) from two years prior. For example, your 2025 premiums are based on your 2023 income. The higher your income, the more you pay in Medicare premiums.
The IRMAA surcharge is tiered, meaning the more you earn, the higher the surcharge. For example, someone with a MAGI of $214,000 or more may pay up to $400+ more per month for Medicare coverage than someone with a lower income. This surcharge can add up to thousands of dollars per year, increasing your healthcare expenses significantly during retirement.
Methods to Reduce IRMAA Liability
While IRMAA surcharges are based on income, there are several proactive strategies to reduce your liability. With careful planning and expert guidance, you can lower your MAGI and avoid unnecessary charges:
Tax- Deferred retirement accounts
Contribute to tax-deferred retirement accounts like IRAs or 401(k)s. These contributions reduce your taxable income and can help keep you in a lower IRMAA bracket.
Roth Conversions
Gradually converting a portion of your traditional IRA to a Roth IRA in lower-income years can help you manage your taxable income over time and prevent sudden spikes in income that trigger IRMAA.
Delaying Social Security
Social Security income is included in your MAGI and can push you into a higher IRMAA bracket. By delaying your Social Security benefits (ideally until age 70), you may reduce the income included in your MAGI and minimize your IRMAA surcharge.
Tax-Efficient Investments
Investing in tax-efficient vehicles, such as municipal bonds or tax-managed mutual funds, can help you generate income that is not counted toward your MAGI, thereby reducing your IRMAA liability.
Consider Charitable Donations
Donating to charity can help reduce your taxable income, especially if you make a qualified charitable distribution (QCD) from an IRA. These donations count toward your required minimum distributions (RMDs) but do not count toward your MAGI, which can help reduce your IRMAA.
Medical Expense Deduction
Medical expenses that exceed a certain percentage of your income may be deductible on your tax return. By strategically timing large medical expenses (such as elective surgeries or treatments), you can reduce your taxable income and potentially lower your IRMAA surcharge.
The Costly Mistakes People Make When Managing IRMAA
Failing to plan for IRMAA can result in costly mistakes that could have been easily avoided with proper guidance. Some common mistakes include:
Ignoring the rules until it's too late
Many people don’t realize that their income will trigger IRMAA until they receive the higher premium notice from Medicare. Without proactive planning, it’s difficult to reduce your IRMAA liability once it’s been assessed. Planning ahead is essential for minimizing these charges.
Underestimating the Impact of Income
Many retirees don’t realize that IRMAA is based on your income, not just your Social Security benefits. This means that other sources of income, such as pension payments, withdrawals from traditional retirement accounts, or even capital gains from investments, can all contribute to triggering IRMAA. Failing to account for these can result in unexpectedly high premiums.
Overlooking Tax Efficient Life Policies
Certain types of permanent life insurance policies, when structured correctly, can provide tax-free access to cash value through withdrawals or loans.
Because this income is not typically included in MAGI, it may help to keep your income below IRMAA thresholds.
Not using Annuities
A portion of each payment from an immediate annuity is typically considered a tax-free return of principal.
This can help reduce the taxable portion of your income
Plan early, live freely
Don’t wait until it’s too late to manage your IRMAA liability. Contact The Fiduciary Firm today to schedule a consultation. Our team of experienced advisors will work with you to develop a tailored strategy to minimize your IRMAA surcharge and ensure your retirement is as cost-effective as possible.