The Income-Related Monthly Adjustment Amount (IRMAA) can significantly impact Medicare costs for higher-income beneficiaries. For that reason, it’s crucial to understand how this adjustment works, as it directly influences Medicare Part B and Part D premiums. By familiarizing yourself with the mechanisms behind IRMAA and its income brackets, you can effectively manage your healthcare expenses. It may sound daunting, but implementing a strategic plan can help minimize the impact of IRMAA and prevent unexpected increases in your Medicare premiums.
What is IRMAA?
Income-Related Monthly Adjustment Amount (IRMAA) is an additional charge on top of the standard Medicare Part B and Part D premiums for individuals with higher modified adjusted gross incomes (MAGI). This adjustment is mandated by sections 1839(i) and 1860D-13(i) of the Social Security Act, so it’s unfortunately unavoidable. The premiums are based on a sliding scale that adjusts according to your income bracket and tax filing status.
IRMAA and Tax Filing Status
The IRMAA tables categorize beneficiaries based on three filing statuses:
- Single, head-of-household, or qualifying surviving spouse with a dependent child.
- Married filing jointly.
- Married filing separately.
Each category has specific income brackets that determine the premium adjustments. For example, in 2024, singles with incomes up to $103,000 pay a standard monthly premium of $174.70 for Part B, while married couples filing jointly with incomes up to $206,000 enjoy the same rate.
Here’s a breakdown of the tax brackets for 2024 based on filing status:
Single Taxpayers:
- 10% for incomes of $11,600 or less
- 12% for incomes over $11,600 up to $47,150
- 22% for incomes over $47,150 up to $100,525
- 24% for incomes over $100,525 up to $191,950
- 32% for incomes over $191,950 up to $243,725
- 35% for incomes over $243,725 up to $609,350
- 37% for incomes over $609,350
Married Filing Jointly:
- 10% for incomes of $23,200 or less
- 12% for incomes over $23,200 up to $94,300
- 22% for incomes over $94,300 up to $201,050
- 24% for incomes over $201,050 up to $383,900
- 32% for incomes over $383,900 up to $487,450
- 35% for incomes over $487,450 up to $731,200
- 37% for incomes over $731,200
IRMAA for Medicare Part B and Part D in 2024
In 2024, IRMAA for Medicare Part B and Part D premiums are determined based on 2022 federal tax returns. The standard Medicare Part B premium for 2024 is $174.70 for beneficiaries with income below $103,000 (singles) or $206,000 (married filing jointly). The IRMAA adjustment applies to roughly 8% of Part B and Part D beneficiaries and can increase monthly premiums significantly based on income brackets. Part B premiums can range up to $559 for married couples with incomes over $386,000. IRMAA for Part D also follows a similar income-based adjustment, with premiums ranging from $12.90 to $81.00 extra per month for high-income beneficiaries.
Strategies to Manage IRMAA
The key to managing IRMAA lies in understanding the income brackets and implementing effective tax strategies. Here are three actionable strategies to help manage potential increased Medicare costs:
- Roth Conversions: Roth conversions involve moving pre-tax funds from a traditional IRA or a qualified retirement plan into a post-tax retirement account. This triggers an immediate tax bill, which is treated as income for the year. While this can lead to future tax-free withdrawals, it may also increase taxable income, affecting future Medicare premiums. It’s important to weigh the benefits against potential IRMAA increases.
- Tax Loss Harvesting: Tax loss harvesting involves selling investments at a loss to offset capital gains. This strategy helps reduce adjusted gross income and can potentially lower future Medicare premiums. It’s an effective year-end strategy to consider if you have capital gains to offset.
- Qualified Charitable Distributions (QCDs): Retirees can make charitable donations directly from their retirement accounts through qualified charitable distributions (QCDs). This strategy allows donations to be excluded from taxable income, thereby preventing increases in taxable income and future Medicare premiums. QCDs are available for retirees aged 70½ or older, even though required minimum distributions now start at age 73.
Avoiding the Medicare “Hurricane”
Even a minor increase in income can push beneficiaries into a higher IRMAA tier, raising their Medicare premiums significantly. The potential for unexpected increases makes it vital to be mindful of how income changes might affect Medicare costs. This is particularly relevant for those utilizing strategies like Roth conversions, which can increase taxable income and trigger higher premiums. Planning ahead and being aware of income thresholds can help beneficiaries avoid these sudden cost hikes, which financial advisors often refer to as the “hurricane” of unexpected healthcare expenses in retirement.
Appealing Medicare Premiums
If you experience a significant life change, such as divorce, death of a spouse, loss of a pension, or retirement, you may appeal your Medicare Part B premium. This appeal must be filed upon receiving the benefit notice for 2024. Appealing based on a “life-changing event” is crucial for managing unexpected premium increases, especially since IRMAA is based on income from two years prior. Circumstances like job loss or changes in marital status can substantially lower income, making an appeal a vital tool for preventing undue financial strain from inflated Medicare premiums.
Walking the IRMAA Tightrope
Managing IRMAA and Medicare costs requires careful planning and awareness of how income changes impact premiums. By utilizing strategies like Roth conversions, tax loss harvesting, and qualified charitable distributions, you can potentially minimize IRMAA impacts and avoid unexpected Medicare cost hikes. Ultimately, staying informed and proactive is the best way to successfully navigate these challenges.
If you have any questions, give us a call or read Chapter 6 of “Wealth on Purpose” by Bryan Ballentine.
Have a great weekend!
Sources: Located at the bottom of the article.
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Sources:
Retirees will pay more for Medicare Part B premiums in 2024. What to know about managing those costs
2024 Medicare Parts A & B Premiums and Deductibles
IRS provides tax inflation adjustments for tax year 2024
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