IRMAA, or Medicare’s Income-Related Monthly Adjustment Amount is an extra fee that is added to your monthly Medicare premium. What is the calculation for IRMAA surcharge and how can you avoid it?
IRMAA is an added fee to your monthly Medicare premium that is based on your income from previous years.
It is common for retirees with large IRAs or have IRAs that make up a majority of their retirement savings, those with large pensions, or those who have high expenses in a single year.
IRMAA is unique in that it is one of the few taxes that has no phase in with respect to income levels. If you are one dollar above the income threshold, you will pay significantly more for your Medicare.
Exactly how much IRMAA adds to your Medicare premiums will depend on your income from 2 years prior. For example, in 2021 the IRMAA brackets looked like this:
For example, in 2021, if a married couple on Medicare had income of $176,000 in 2020, each person will pay $148.50 per month for Medicare Part B. If they have income of $176,001, they will each pay $207.70 per month. That 1 dollar in extra income can cost a married retired couple about nearly $120 per month, or $1,425 per year in extra taxes.
The income amounts that trigger the IRMAA surcharge change every year. For 2022, Medicare will look at your 2020 income (specifically your 2020 MAGI – modified adjusted gross income):
The most recent Medicare IRMAA brackets will be updated on Medicare.gov as well
In total there are 6 different brackets for Medicare premiums – And so, knowing where those income thresholds are, is a very important place to start.
There are a few things retirees can do to limit the impact of IRMAA and keep yourself out of those higher brackets.
First, Make sure you don’t qualify for an appeal. We have more on how to appeal the IRMAA surcharge here.
If you are not eligible for an appeal, consider analyzing your retirement plan and withdrawal strategy to see if you can limit your income.
For example, you can withdrawal money from Roth or taxable brokerage accounts during the year instead of IRAs. This will help reduce income that counts towards the IRMAA limit.
If you don’t have investments in a Roth account, you can consider doing Roth conversions which may not help you avoid IRMAA surcharges this year, but can help prevent it in future years.
Also, you can be flexible with your spending, and spread out large withdrawals over multiple years.
For example, if you intend to buy a car in January, maybe you can withdrawal half of the money in December of the year prior, and the remaining half in January to spread the income between 2 different tax years.
Health care is often one of the largest expenses over retirement. Knowing how to invest and spend your retirement assets to avoid IRMAA can help reduce that cost.
Helping our clients avoid unnecessarily paying extra for Medicare is just one benefit we offer to our clients. To see how we can help you, schedule a free, no obligation 30-minute meeting to talk with us.
Looking for more information about Medicare? Check out our guide to Medicare.