7 Ways to Lower Your Income and Avoid the IRMAA Medicare Surcharge, #142

Retire With Ryan

The last thing retirees on a fixed income want is expensive monthly healthcare costs. If you’re not careful, you could unintentionally trigger higher Medicare Part B and D premiums through an IRMAA surcharge. On this episode, I’m going to show you how to lower your Medicare costs by lowering your taxable income.

You will want to hear this episode if you are interested in...

• Understanding MAGI limits [2:01]
• The IRMAA appeals process [5:44]
• Reducing your taxable income through generosity [7:40]
• Tax-efficient investment strategies [10:46]
• Converting traditional IRAs and 401ks to Roth accounts [12:46]

How Medicare costs are determined

When you enroll in Medicare, you’ll receive a letter detailing your annual Part B and D premiums. The amount is based on the modified adjusted gross income (MAGI) from your tax return two years prior. So for those enrolling in Medicare for 2023, your MAGI will be based on your 2021 tax return. Calculating your MAGI is also not as straightforward as something like an adjusted gross income. The modified adjusted gross income is your adjusted gross income plus tax-exempt interest, plus any interest earned or accrued from US savings bonds used to pay for higher education, plus any income earned while living abroad or from any specific sources not included in your AGI, such as Puerto Rico, American Samoa, Guam, or the Northern Mariana Islands.

Once your MAGI is calculated, the government uses that number and your filing status to determine how much your premium will be. If you are even a single dollar over the limit, you could be forced to pay double for your Medicare premium. That’s why knowing how to reduce your taxable income is a great way to avoid the IRMAA Medicare surcharge.

Reducing your Medicare premiums

Avoiding the IRMAA Medicare surcharge should be the first thought in every new Medicare enrollee’s mind. The first option is to file an appeal. Form SSA-44 allows for eight circumstances to justify an appeal including marriage, divorce or annulment, death of a spouse, loss of income-producing property, loss of pension income, or an employer settlement payment. But the most important reason to appeal for retirees is a work stoppage or work reduction.

As previously mentioned, reducing your taxable income is another great way to fight an IRMAA Medicare surcharge. One strategy is to convert traditional IRA and 401k monies to a Roth IRA before the age of 73. Essentially, you’re paying tax now on the Roth funds so you don’t have to pay later, and anything you withdraw will not be considered taxable. Listen to this episode for more on MAGI limits and reducing your taxable income to decrease Medicare costs!

Resources Mentioned

• Avoid Overpaying for Medicare In 2021 and Beyond, #31

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