In this blog post, you’ll learn what IRMAA is, how it’s calculated and tips for avoiding this surcharge.

What is IRMAA?
To start, let’s review what IRMAA actually is. It stands for Income-Related Monthly Adjustment Amount, and it’s an increase to your Medicare Part B and Part D premiums. To put it simply, it’s a surcharge that Medicare members must pay if they make too much money.

IRMAA is determined by your income, and the IRS calculates them based on your tax returns from two years ago. For example, the 2023 IRMAA brackets are based on your MAGI from 2021.

The exact amount of Income-Related Monthly Adjustment Amount (IRMAA) you may be required to pay depends on your modified adjusted gross income (MAGI) as reported on your federal tax return two years ago. You will be subject to higher Medicare premiums if your MAGI exceeds specific thresholds. Here are the 2023 IRMAA brackets for Medicare Part B and Part D:

2023 IMRAA brackets

Stategies to Reduce IRMAA Impact
If you are subject to IRMAA, here are some financial planning strategies you can consider to reduce its impact on your retirement budget:

1. Charitable Giving
You might want to consider contributing directly to charities from your IRA with a Qualified Charitable Distribution (QCD). This option has the benefit of not being counted as taxable income, which could potentially lower your MAGI and, in turn, help reduce your IRMAA.

Additionally, another strategy worth considering is using Donor-Advised Funds (DAFs) for charitable giving. Contributing to a DAF can also provide tax benefits and lower your MAGI, ultimately helping you reduce or avoid IRMAA surcharges.

2. Tax Deductible Retirement Account Contributions
If you have earned income, you should continue to make tax-deductible retirement contributions. Some options include: Traditional IRA, Traditional 401(k)s, Solo 401(k), and SIMPLE or SEP IRAs. Making tax-deductible contributions will reduce your modified adjusted gross income (MAGI) and help keep you in a lower IRMAA bracket in future years.

3. Tax Efficient Investing
Tax-efficient investment strategies can help you reduce your tax bill. One way to do this is to use ETFs, which give you control over your capital gains. Mutual funds can pass down gains to investors even if they don’t sell. Additionally, avoiding high turnover investments can help you save money on taxes. Frequent buying and selling can create unnecessary short-term and long-term capital gains, which can push you into a higher tax bracket.

4. Tax-Efficient Withdrawal Strategies
Develop a strategy for withdrawing money from your retirement savings accounts in a way that keeps your income below the IRMAA thresholds. This may involve a mix of taxable, tax-deferred, and tax-free withdrawals to optimize your income profile.

5. Roth Conversions
The IRS requires you to begin withdrawing money from your Traditional IRA/401(k) account at age 73*. These Required Minimum Distributions (RMDs) can be hundreds of thousands of dollars per year, which can trigger unwanted IRMAA surcharges.

To reduce your future RMDs, consider doing a Roth conversion in your gap years. These are the years between when you retire and when your RMDs begin. For most retirees, their income is lowest during this time, allowing them to take advantage of a lower tax rate.

6. Health Savings Accounts
If you are still employed and have a health savings account, contributing to your HSA can lower your taxable income and potentially reduce your modified adjusted gross income (MAGI).Using HSAs can provide both healthcare savings and relief from IRMAA.

7. IRMAA Appeal
The SSA acknowledges that a lot can change between the year your IRMAA bill is determined and the year you pay it. By providing documentation of a life changing event, you may be able to have your Medicare premiums adjusted.

Life changing events (as defined by the Social Security Administration)

    • Death of Spouse
    • Marriage
    • Divorce or annulment
    • Work reduction
    • Work stoppage
    • Loss of Income Producing Property
    • Loss or reduction of pension income
    • Receipt of employer settlement payment.

Bottom Line
To optimize your retirement finances, you need to understand income thresholds, stay informed about legislative changes, and implement the right strategies. Proactive financial planning and strategic decision-making can help reduce the IRMAA impact.

Contact us for a free consultation on personalized retirement planning. We can help you create a plan that meets your specific needs and goals.

George Maroudas, CFP®

George Maroudas, CFP®

Twitter @ChicagoAdvisor

Disclaimers / Sources:

What are Life Changing Events from the Social Security Administration. 

IRMAA Medicare Part B and Part D Tables from Social Security Administration.  

*RMDs start at age 73 if you reach 72 after Dec 31, 2022. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.