Income-Related Benefits
If the Social Security Administration (SSA) considers you a “high-income beneficiary,” you’ll pay a surcharge known as the Income-Related Monthly Adjustment Amount (IRMAA).
That’s right; many soon-to-be retirees may not realize they must pay more for Medicare Part B if their income exceeds a certain amount in a given year.
Social Security Administration (SSA)
Social Security has provided financial protection for our nation’s people for over 80 years. Chances are, you either receive SS benefits or know someone who does. With retirement, disability, and survivor benefits, SS is one of our nation’s most successful anti-poverty programs.
The SSA is passionate about supporting its customers by delivering financial support, providing superior customer service, and ensuring the safety and security of your information. (SSA.gov)
How High is High-Income?
The SSA uses five modified adjusted gross income (MAGI) tiers to determine your IRMAA.
The first tier starts at a MAGI of more than $103,000 for single filers or more than $206,000 for those who are married and filing jointly (ssa.gov, 2024).
How Can I Reduce My IRMAA?
With exceptions for “life-changing” events such as a divorce or a spouse’s death, you can only reduce your IRMAA by lowering your income or through careful financial planning.
Even if your income is below the first MAGI tier, without proper planning, you may have to pay an IRMAA because of a one-time event.
Some common situations that can bump up your income include:
- Selling a home
- Taking a required minimum distribution (RMD)
- Converting traditional IRA assets to a Roth IRA
- Realizing a large investment or capital gain
- Winning the lottery (yes, it’s true!)
The good news is that if your income decreases, so will your IRMAA, albeit with a two-year delay.
Read more: Medicare IRMAA Appeals.
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Register NowThree Strategies for Reducing Your IRMAA
Roth IRA Conversions
A large, one-time Roth IRA conversion will inflate your taxable income in a year.
This doesn’t mean you should avoid Roth conversions altogether.
You can avoid hitting the high-income threshold in any year by making smaller incremental conversions over several years.
Roth IRA
Roth IRAs have many benefits and are not just for avoiding IRMAA surcharges. Withdrawals from Roth IRAs aren’t taxable, and there are no distribution requirements.
If you can convert your pretax assets to a Roth before age 72, you’ll never have to take a Required Minimum Distribution (RMD), and your income won’t spike because you had to.
But what if you missed the boat on making smaller, incremental Roth conversions before (or right after) you retire?
It would be best if you still considered making a one-time conversion.
Remember that IRMAA is determined annually and that the calculation is based on your income from two years prior.
Yes, you may have to pay an IRMAA two years after making that big Roth conversion, but you’ll never have to worry about it.
Health Savings Accounts (HSAs)
Younger workers with a high-deductible health plan can opt out of an HSA rather than contribute to an IRA.
Contributions to an HSA are tax-deductible, their earnings grow tax-deferred, and withdrawals are tax-free if they cover IRS-qualified medical expenses.
Because qualified withdrawals don’t affect adjusted gross income, they don’t impact your IRMAA calculations.
Qualified Charitable Distributions (QCDs)
If you’re 70 ½ or older, you can make a Qualified Charitable Distribution (QCD) of up to $100,000 in a single tax year.
The catch is that it must be made to a 501(c)(3) charity – not a private foundation or donor-advised fund.
The QCD will satisfy your RMD; if you do it properly, it won’t increase your adjusted gross income.
Prepare in Advance with a Financial Plan
With good financial planning, you can minimize your IRMAA and tax bill well in advance. You’ll also reduce financial anxiety and increase peace of mind.
Get started today by requesting a no-cost, no-obligation consultation with one of our advisors.
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