Broker Check
Medicare IRMAA: Lowering Your Healthcare Expenses

Medicare IRMAA: Lowering Your Healthcare Expenses

| November 17, 2023

Dubbed a “silent killer” of retirement savings, Medicare's Income-Related Monthly Adjustment Amount (IRMAA) can have a major effect on your healthcare expenses. Your Medicare Part B premiums are based on your Modified Adjusted Gross Income (MAGI) from two years prior.

If you’re preparing your 2024 IRMAA payments, you need to go back to your 2022 MAGI to get an idea of what exactly you’ll be paying. And if you’re MAGI was higher 2 years ago, you might incur a cost that you haven’t budgeted for. Don’t let this catch you off-guard. Understanding IRMAA is vital for managing your post-retirement healthcare costs.

How IRMAA Influenced Medicare Payments in 2023

As we’ve already laid out, the 2023 IRMAA Medicare costs came from income levels reported, two years ago, on the 2021 tax return. Individual earners with an income of $97,000 or less or joint filers reporting $194,000 or less had no additional charge for Medicare Part B or Part D.

The chart below highlights the brackets that were affected.

 

Individual Filers (2021)

 

Joint Filers (2021)

 

Part B Increase % (2023)

$97,001 - $123,000

$194,001 - $246,000

+40%

$123,001 - $153,000

$246,001 - $306,000

+100%

$153,001 - $183,000

$306,001 - $366,000

+160%

$183,001 - $500,000

$366,001 - $750,000

+220%

$500,001 or above

$750,001 or above

+240%

 

Solutions to Paying Less

At the heart of how to pay less for Medicare Part B is to control your taxable income. Consider managing taxable items such as Social Security benefits, 1099 income, and withdrawals from IRAs or 401(k) plans to keep your MAGI within the thresholds that qualify for lower Medicare Part B premiums.

Social Security Benefits

Delaying the start of your social security benefits will help reduce your overall income, lowering your MAGI in your early retirement years. But the longer you wait, the larger your monthly benefit becomes, so getting ahead of the game is important. One way to push back that start-date on your benefits, is finding money from alternative sources like a savings account or taking on part-time employment.

1099 Income

If you’re self-employed or receive income through 1099s, take advantage of all available business deductions. Keep detailed records of business-related expenses to lower your taxable income. Work with a tax professional to identify tax-saving opportunities. For instance, contributing to a retirement account like a Simplified Employee Pension (SEP) IRA or a Solo 401(k) plan is one way to reduce your taxable income. Also, remember, that interest collected from bank accounts and bonds as well as passive investments will generate a 1099.

Withdrawals from IRAs or 401(k) plans

Consider converting traditional IRA or 401(k) funds into Roth IRAs gradually. Roth conversions may be taxable events, but they can help reduce future taxable income. Plan your withdrawals strategically to minimize tax liability. For example, withdraw funds from taxable accounts first and let your tax-advantaged retirement accounts continue to grow tax-deferred.

Any withdrawals from your pre-tax IRAs or 401(k) plans also count toward your MAGI, yet another reason why pre-retirees should consider saving into Roth IRAs and 401(k) plans. Consider a Roth conversion as well because those withdrawals will not count towards your MAGI. Word of caution, the act of converting does count against your taxable income, so make sure you’re doing a Roth conversion at aged 63 or later.

Work Stoppage Events

One of the most common instances where you might find your IRMAA too high to afford, is when a work stoppage event occurs in the middle of that two-year window. For instance, if you left your job in 2023, but your 2024 Medicare Part B payment is based on your 2022 MAGI, when you were employed. Now what?

Luckily, there’s an appeals process. You can file an appeal due to job loss or retirement to adjust your Medicare Part B payment to align your costs with your current financial circumstances.

Work With the SKG Team

Effective tax planning is crucial for grasping IRMAA's influence on healthcare costs. Professional wealth management experts from the SKG team excel in integrating tax planning into your financial strategy. Our expertise empowers retirees to navigate the intricacies of IRMAA and other financial aspects, ultimately optimizing their post-retirement financial well-being.

Neither MML Investors Services nor any of its subsidiaries, employees or agents are authorized to give legal or tax advice. Consult your own personal attorney, legal or tax counsel for advice on specific legal and tax matters.