Medicare can be complicated, and Part B premiums are particularly tricky since the monthly cost is actually based on your income from 2 years ago. For example, your 2023 Part B premiums are based on your 2021 tax return’s adjusted gross income (MAGI).
If your MAGI is above $194,000 for a couple ($97,000 single), you’re going to get a nice little letter in the mail announcing that you’re now subject to an IRMAA – or Income Related Medicare Adjustment Amount. Based on your income, there are 5 IRMAA tiers, which can increase your Part B premium from the 2023 base of $164.90/month to the highest tier of $560.50/month. (There is a Part D prescription income adjustment amount as well, which can add up to $76.40/month to your prescription plan cost.) The IRMAA adjustments can catch you off guard – especially at two points in life.
The first is when you retire. As a new retiree, your income is probably not as high as it was 2 years ago, looking back at a tax return that reflects your peak earning years. The good news is that you can file an SSA-44 form to request a waiver of the IRMAA for any “life-changing” event that results in lower income: retirement, death of a spouse, divorce, loss of income-producing property, etc. It’s easy to do, and they’ll even refund you the IRMAA amounts you may have already paid.
The second point in life when the IRMAA can show up is when Required Minimum Distributions increase your income. All of the sudden your income exceeds that base tier and here comes the IRMAA letter. Unfortunately, you cannot use an SSA-44 form to request an exemption. Instead, you’ve got to think proactively. Systematic Roth conversions leading up to RMD age is my favorite strategy. Lower taxable RMD’s can hold you under the IRMAA threshold.
If that idea doesn’t float your boat, then consider the Qualified Charitable Distribution (QCD) Rules. By donating any portion of your RMD directly to a non-profit of your choice, you’ll reduce your taxable RMD and that directly translates to lower reported income and cheaper Part B premiums.
Being proactive is key, so please don’t just resign yourself to paying the IRMAA. Explore your options and keep those Medicare premiums as low as possible, for as long as possible!
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