Maybe you’ve never heard of IRMAA, or maybe you have and have an understanding of the general details. One thing for certain is that big changes are coming to high income earners and individuals. In this blog post, I’ll cover what IRMAA is, why it’s important, the changes that are coming to high income earners, and what you can do to prepare.
What is IRMAA?
IRMAA stands for Income-Related Monthly Adjustment Amount. It is an additional charge that some Medicare beneficiaries are required to pay for their Part B (medical insurance) and Part D (drug coverage) premiums, depending on their income. IRMAA is based on the beneficiaries' modified adjusted gross income (MAGI), as reported on their federal tax returns from two years prior to the current year.
For example, in 2023, the income thresholds and surcharge amounts for IRMAA will be based on the beneficiaries' 2021 federal tax returns.
The Centers for Medicare & Medicaid Services (CMS) sets the income thresholds and surcharge amounts for IRMAA each year. As per the recent changes announced by the CMS, the income thresholds and surcharge amounts for IRMAA will be increased for 2023, for beneficiaries with income above certain thresholds and that results in higher Medicare premiums for certain beneficiaries
Breaking down IRMAA income thresholds
The income thresholds for IRMAA are set by the Centers for Medicare & Medicaid Services (CMS) and they are based on the beneficiaries' modified adjusted gross income (MAGI), as reported on their federal tax returns from two years prior to the current year.
The income thresholds for IRMAA are as follows:
- $88,000 or less for married beneficiaries filing jointly
- $87,000 or less for single beneficiaries
- $176,000 or less for married beneficiaries filing jointly and $174,000 or less for single beneficiaries are not subject to IRMAA.
For beneficiaries with income above these thresholds, the additional surcharge is applied to the Medicare Part B and Part D premiums. The amount of the surcharge depends on the beneficiaries' income level and it can be substantial for those with higher incomes.
It’s worth mentioning that these thresholds are periodically adjusted by CMS so it’s good to check official website for updated information.
How to prepare for IRMAA 2023 changes as a high income earner
If you are a high income individual, it is important to plan for taxes to minimize the additional surcharges you may have to pay for your Medicare Part B and Part D premiums. Here are a few things you can do to plan for taxes:
- Review your income: Make sure you understand how your income is calculated for IRMAA and what types of income are included. For example, your modified adjusted gross income (MAGI) is used to determine your IRMAA, which includes your taxable income, plus certain tax-exempt interest.
- Plan for deductions and credits: Look into any deductions or credits that you may be eligible for, such as charitable donations or medical expenses. These can lower your taxable income and potentially reduce your IRMAA surcharge.
- Consider your retirement accounts: Consider how your contributions to retirement accounts, such as traditional 401(k)s or individual retirement accounts (IRAs), may affect your taxable income.
- Consult a professional: Consider consulting a tax professional or financial advisor to help you plan for taxes and navigate the complexities of IRMAA. We are more than happy to provide you additional advice and guidance at Savvy.
- Be aware of changes: Be aware of any changes to the income thresholds and surcharge amounts for IRMAA, as well as any other tax laws or regulations that may affect you.
It’s worth mentioning that tax planning should be done in advance, as sometimes it is not possible to change your income after it has been earned or reported.
How an advisor (but not just any kind) can help
A financial advisor can help you in several ways to plan for taxes and navigate the complexities of IRMAA. Here are a few examples:
- Tax Planning: A financial advisor can help you create a tax plan that minimizes your income and maximizes your deductions and credits. This can help you lower your taxable income and potentially reduce your IRMAA surcharge.
- Investment advice: A financial advisor can provide investment advice to help you manage your investments in a way that can minimize your income and thus your Medicare premiums, while still helping you to achieve your financial goals.
- Retirement Planning: A financial advisor can help you plan for retirement by providing advice on which retirement accounts to contribute to and how much to contribute, in order to reduce your income and IRMAA surcharge while still saving for your future.
- Retirement income planning: An experienced financial advisor can help you plan for how you will generate income in retirement, providing guidance on how to create a reliable income stream that can help you pay for healthcare expenses and minimize your Medicare premiums.
- Keep you informed: A financial advisor can help you stay informed of any changes to the income thresholds and surcharge amounts for IRMAA and any other tax laws or regulations that may affect you, and help you to adjust your plan accordingly.
The bottom line
Financial advisors can play a crucial role in helping you plan for taxes and navigate the complexities of IRMAA, but it’s important to choose a qualified and experienced professional who is fiduciary, so that you have peace of mind knowing that the advice you are receiving is in your best interest.