Avoiding Pitfalls When Planning for IRMAA
Robert Klein, CPA from the Retirement Income Center discusses some pitfalls to avoid when planning for Medicare's income related adjustments.
Key Takeaways
- Start IRMA planning by age 63 at the latest (ideally by age 60), since Medicare uses your tax return from 2 years prior to determine Part B premiums when you turn 65
- Don't let IRMA planning prevent beneficial transactions—a home sale's one-time IRMA spike in year 2 typically represents a small percentage of your gain, and IRMA resets the following year unless you have additional large income events
- For Roth conversions, spread them across multiple years before age 63 to minimize the IRMA increase as a percentage of your taxable income, while capturing three major long-term benefits: tax-free growth, RMD exemption, and potential lower tax rates
- Income thresholds that trigger IRMA surcharges are $91,000 (single) or $182,000 (married filing jointly); surcharges range from $68 to $408.20 monthly depending on income level
- Incorporate IRMA planning into comprehensive retirement and tax planning with a qualified professional, and account for taxable Social Security benefits when projecting income, as COLA adjustments can quickly push you into higher IRMA brackets
Avoiding Pitfalls When Planning for IRMAA: Robert Klein, CPA from the Retirement Income Center discusses some pitfalls to avoid when planning for Medicare's income related adjustments (IRMAA).
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Avoiding Pitfalls When Planning for IRMAA
What Is IRMAA?
IRMAA, or Income-Related Monthly Adjustment Amount, is an additional charge that some Medicare beneficiaries may have to pay for their Medicare Part B (outpatient medical services) and Part D (prescription drug) coverage. The charge is based on the beneficiary's income, as reported on their federal tax return from two years prior.
IRMAA is determined by the Centers for Medicare and Medicaid Services (CMS) and is intended to ensure that higher-income beneficiaries pay a larger share of the costs for their Medicare coverage. The income thresholds for IRMAA are adjusted each year and are based on the beneficiary's filing status, such as single or married filing jointly. Beneficiaries with income above certain thresholds will pay higher premiums for Part B and/or Part D coverage.
It's important to note that beneficiaries who are subject to IRMAA may be able to appeal the charges if their income has decreased or if there are other extenuating circumstances that would make paying the additional charges a financial hardship.
In summary, IRMAA is an additional charge for Medicare Part B and Part D coverage that is based on the beneficiary's income and is intended to ensure that higher-income beneficiaries pay a larger share of the costs for their Medicare coverage.
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