Strategies for Avoiding IRMAA

Income-related monthly adjustment amount, or IRMAA, applies to Medicare beneficiaries with Part B and/or Part D coverage.  IRMAA is a surcharge that is added to your Part B and Part D premiums for those who have higher incomes.  Traditionally, the IRS looks back two years at your tax returns to determine if IRMAA will apply to you or not.  If your income has decreased due to a life event, such as retirement, learn how you can appeal your IRMAA surcharge

As the tables below show, there are multiple tax brackets that apply to IRMAA.

Controlling income from different types of accounts during retirement is important to use these strategies.  These “pockets” include, but are not limited to, after-tax brokerage accounts, IRAs, 401(k), Roth IRAs and cash accounts.

  • Using nonqualified money first – The thought process behind this is to defer taxes as long as possible, using nonqualified accounts (after-tax monies) first. If you have a large 401(k), IRA, etc., your Required Minimum Distribution (RMD) may cause you to realize more income while pushing you into a higher tax bracket and subjecting you to IRMAA surcharges.
  • Roth conversions – Paying the IRMAA surcharge for a shorter amount of time and avoiding it later in life might work for you. Doing this by age 69 is suggested.
  • Over-saving in pre-tax accounts – Placing all your savings in pre-tax retirement accounts can be a problem, as discussed in the first bullet above. If you have the option to save in a Roth IRA, Roth 401(k), or an individual/joint brokerage account, take advantage of these.  Roth distributions are tax free and individual/joint brokerage accounts can provide income at a different tax rate and help supplement income without pushing you into a new tax bracket.
  • Use RMDs as QCDs – Are you charitable? If so and you are over the age of 70 ½, you can use up to $100,000 each year from your IRA account towards Qualified Charitable Distributions (QCD). These will satisfy your RMD but not count as taxable income.

IRMAA can get a little cumbersome, so as always, we recommend a discussion with your financial advisor and accountant for the strategy that best suits your situation.

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Pittenger & Anderson, Inc. does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.  Additionally, the information presented here is not intended to be a recommendation to buy or sell any specific security.  To learn more about our firm and investment approach, check out our Form ADV.

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Since 1995, Pittenger & Anderson has guided individuals and families going through money-in-motion events. We are a fee-only Registered Investment Advisor and a full-time fiduciary providing investment management, financial planning, and complimentary services to 700+ clients in over 30 U.S. states.

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