“My wife and I are both 65 and just retired. We are trying to figure out an income plan and how to draw from our different sources of income and savings properly. Some friends of ours said we need to watch out for IRMAA. We have no idea what this. Can you please explain? Thank you.” Terry.
Hello Terry. Congratulations on your recent retirement. Setting up the proper income plan is vital to manage and mitigate taxes and other potential fees. And IRMAA is one of those fees that could cost you a lot of money that you probably did not plan for if you don’t design your income plan properly. Unfortunately, most people are not aware of IRMAA, and most advisors are not familiar with this either and thus not helping their clients avoid it.
IRMAA stands ‘income-related monthly adjustment amount’. This is a fee you pay on top of your Medicare Part B and Part D premiums if you make a yearly income above the annual thresholds. It applies only to Medicare beneficiaries with a modified adjusted gross income above $103,000 (individual return) or $206,000 (joint return). The Medicare IRMAA for Part B and Part D is based on your income and is calculated on a sliding scale. When determining whether IRMAA applies to you, Medicare uses the adjusted gross income amount reported on your tax return from two years prior.
When people turn 65, they will apply for Medicare. Premiums charged for the Part B and D coverage vary depending on your MAGI (Modified Adjusted Gross Income). The more you make, the more you pay (it’s like a progressive stealth tax or penalty)! The penalty is anywhere from 70%-340% of the base Medicare premium.
For 2024, the baseline Medicare Part B premium is $170.70 per month, per person. If your income crosses the first threshold, even by a dollar, your premium goes up to $244.60 per month. The cost continues to go up after your income crosses other thresholds. The top threshold would cause your premium to be $594 per month.
Most of the time, the IRMAA amount would be deducted from your Social Security check. So, as you can imagine, many people are shocked to receive a letter in the mail telling them their Social Security benefit is going to be reduced by a substantial margin if their income crosses those thresholds. So, if you do not have the properly designed retirement income plan, or make some moves to sell some assets or property, you could be shocked in how that cost you a lot of money.
In order to prevent IRMAA from costing you a lot of money in retirement, you need to make sure you have the proper knowledge and education of how the tax code works in retirement, and also understand all the rules regarding income, tax and IRMAA planning. Most people do not have this knowledge and education and thus need to work with a retirement planning professional with income and tax planning expertise. Fortunately, there are solutions to avoiding IRMAA and other taxes and penalties if you make the proper and strategic moves to balance your incomes and assets properly, and you set up your retirement income plan properly and know how to draw income and assets from your sources properly.
To get your retirement planning questions answered or to sign up for a retirement course, visit the Prepare Institute website (www.theprepareinstitute.org) to contact us and/or find a retirement course or class near you.
Content is for educational and informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. You should contact your retirement and tax professional before utilizing any of the information in this article.