Just because you’ve reached the age when you can sign up for Medicare doesn’t mean that you’re done paying for health insurance.
While Medicare Part A for hospital coverage is free for most retirees, Part B (outpatient) and Part D (prescription drugs) do charge monthly premiums. And if your income is high enough, you might get slapped with a surcharge known as the Income-Related Monthly Adjustment Amount, or IRMAA.
“IRMAA is means testing for Medicare Part B and Part D,” says David Freitag, a financial planning consultant for MassMutual. “It’s misunderstood and many times a surprise. People can end up paying hundreds more per month than they expected for Medicare.”
The IRMAA surcharge applies only to beneficiaries with higher-than-average incomes. For 2023, you owe IRMAA if your Modified Adjusted Gross Income (MAGI) is more than $97,000 as an individual or $194,000 as a married couple. The government checks each year to determine whether IRMAA still applies—but it uses two-year-old tax returns.
The higher your MAGI, the more you could owe for IRMAA. In 2023, Part B premiums for those who don’t owe IRMAA are $164.90 per month per person. If you do owe IRMAA, the Part B premium can range from $230.80 to $560.50 a month, depending on your MAGI.
Wilson Coffman, president of Coffman Retirement Group in Huntsville, Alabama, says avoiding IRMAA isn’t easy because at the end of the day “you just need to have less income.”
Still, there are some planning strategies that can help you prevent or lower this surcharge.
Consider a Roth conversion. Withdrawals from a Roth IRA do not count toward IRMAA. If you don’t have a Roth, Coffman suggests converting some of your 401(k) or IRA balance into one. You would owe taxes upfront on the amount you convert. Ideally, he says, you’d make this move in your early sixties so the taxable income from the conversion doesn’t lead to IRMAA when you’re on Medicare.
Contribute more to retirement plans. If you’re still working and haven’t maxed out your retirement plans, you could also boost deductible contributions to your 401(k) or traditional IRA. This can bring you below the IRMAA limit while saving more money for the future.
Delay and donate taxable retirement plan withdrawals. Delaying withdrawals from your tax-deferred retirement accounts can keep you below the IRMAA limit while giving your savings more time to grow.
Defer taking Social Security. If you don’t need Social Security at the start of retirement, Coffman suggests delaying it. “Your Social Security income won’t count for IRMAA while you delay,” he says. And every year you postpone benefits beyond your full retirement age—66 to 67 for most workers—your benefit increases by 8 percent until age 70.
You can appeal IRMAA if your income is significantly lower now than two years ago. However, you must have a life-changing event, such as retirement, divorce, death of a spouse or a lost pension. You can also appeal if you think the government made a mistake with its calculation.
(David Rodeck is a contributing writer at Kiplinger’s Retirement Report. For more on this and similar money topics, visit Kiplinger.com.)
