IRMAA is Avoidable
This year over 7 million retirees will receive a letter from the Social Security Administration informing them that their Medicare premiums will be higher than normal and that their Social Security benefit will be much lower than they are anticipating.
These 7 million people will be in what is affectionally known as IRMAA and the worst part is that there is no real reason for the to be in it.
IRMAA is avoidable.
What is IRMAA?
IRMAA is an acronym that stands for Medicare’s Income Related Monthly Adjustment Amount.
The Medicare Handbook defines IRMAA as “an extra charge to your premium” if you are earning too much income.
Retirees who generate too much income while on Medicare will be subject to a surcharge or extra cost on top of the Medicare Part B and Part D premiums.
Ultimately, IRMAA is a tax on your income through Medicare, but you have to be earning a certain amount of income beforehand to qualify for it.
Compounding this issue of IRMAA is that Social Security benefits automatically pay for these surcharges which reduces a retiree’s income even further.
How does IRMAA work?
IRMAA works solely on your income or more specifically your modified adjusted gross income (MAGI).
The more you have of it, your MAGI, the greater the chances you have of being in IRMAA.
In 2024 the amount of MAGI you will need to reach IRMAA is $103,000 as an individual and $206,000 as a coupe for the year.
Note that the more MAGI you have the greater the tax IRMAA will impose for the year too.
In 2024 the IRMAA MAGI Thresholds and Surcharges are as follows:
| Individual MAGI | Couple MAGI | Part B (monthly) | Part D (monthly) |
|---|---|---|---|
| <$103,000 | <$206,000 | $174.70 | Premiums (varies) |
| $103,000 - $129,000 | $206,000 - $258,000 | $244.60 | Premium + $12.90 |
| $129,000 - $161,000 | $258,000 - $322,000 | $394.40 | Premium + $33.30 |
| $161,000 - $193,000 | $322,000 - $386,000 | $454.20 | Premium + $53.80 |
| $193,000 to $500,000 | $386,000 to $750,000 | $559.00 | Premium + $74.20 |
| >$500,000 | >$750,000 | $594.00 | Premium + $81.00 |
What is MAGI for IRMAA?
The Social Security Administration (SSA) defines MAGI as your:
Adjusted gross income (AGI)
+
Any tax-exempt interest you may have for the year.
You can locate your MAGI on your 2022 IRS tax form 1040 by simply adding lines 2a and 11 together.
What income counts towards your MAGI?
Income that counts towards your MAGI includes revenue from sources like:
| Taxable Social Security benefits | Traditional 401(k) Withdrawals |
| Wages | Traditional IRA Withdrawals |
| Pension & Rental Income | Traditional 403(b) Withdrawals |
| Capital Gains | Qualified Annuities |
| Dividends | Interest |
For a more comprehensive list of what counts towards IRMAA click here.
Are there any income sources that do not count towards IRMAA?
The list of what does not count towards IRMAA is as short as what counts as IRMAA income is long and currently there are only few sources of revenue that you can use in retirement which include:
- Roth Accounts (Employer or Individual) – distributions from a Roth account that are after the age of 59 ½ and are held for at least a 5-year period are tax-free.
- Life Insurance – the Cash Value of the policy if the revenue from the Cash Value is a loan as loans never count towards IRMAA.
- Non-Qualified Annuities – portions of the income from this type of investment may produce a “tax-exclusion” which is not taxable.
- The “tax-exclusion” of Annuities has many factors and we recommend you meet with an IRMAA Certified Planner to discuss them.
- Health Savings Accounts (HSA’s) – qualified distributions from any HSA are never taxable.
- 401(h) Plans – these plans are similar to HSA’s and are solely for businesses.
- Loans from your primary residency – yes, a Reverse Mortgage may be a great idea as again, loans will never count towards IRMAA.
So, how do you avoid IRMAA?
Avoiding IRMAA is as simple as not investing into financial instruments that may have tax-deferral and instead investing into financial instruments where you ay today.
By using a Traditional 401(k) or IRA today you may be getting a tax break to help provide you more income now, but later, in retirement, you will have to take a portion of that money out and you will have less income later.
The easiest way to avoid IRMAA is to have your retirement assets in financial instruments like a Roth or Life Insurance.
Yes, you will most likely have to pay higher taxes today, however you will have much more later.
The reality is that both the Medicare and Social Security programs are near insolvency. The only way to sustain these two programs is to tax more income.
IRMAA is the simplest, most readily available tool for the government to use.
Conclusion to IRMAA is Avoidable:
IRMAA is a tax on income.
Income for IRMAA comes from the majority of the savings many retirees have which includes Traditional IRA’s, 401(k)’s and 403(b)’s.
The easiest way to avoid IRMAA and even the taxation of Social Security benefits is to invest in Roth Accounts or use Life Insurance.
Because IRMAA increases Medicare premiums it generates more revenue for that program.
Because Medicare premiums come directly out of Social Security benefits the obligations Social Security has will be lower.
Both these programs, Medicare and Social Security are on the brink of bankruptcy and left to their own current devices they will be broke in just a few years.
IRMAA is the best solution to ensuring that these 2 programs remain solvent without making any other necessary legislative changes like proper money management.
By delaying this decision of avoiding IRMAA the odds of you paying more in taxes and Medicare while losing most if your Social Security benefit will become a reality.
