Medicare and How to Avoid Paying Higher Premiums

January 10, 2023

Medicare and How to Avoid Paying Higher Premiums

As the annual open enrollment period continues to roll on, it’s important to understand how your Medicare premiums can be impacted due to income. IRMAA, which is short for income-related monthly adjustment amount, is how Medicare calculates how much more you will have to pay for Medicare based on your income. In 2023, IRMAAs will impact individuals with modified adjusted gross income for 2021 of more than $97,000, and for couples, more than $194,000. The updated 2023 Medicare part B premiums by income are displayed below.

This possible increase in Medicare premiums should be considered when taking distributions from partially tax deferred retirement accounts. These potential income spikes can occur for different reasons. For example, pulling a chunk of money from an IRA to buy a car, pay for a trip, or executing a Roth conversion. IRMAAs are calculated using your income from 2 years ago, as shown above, your 2023 premiums are based on your income in 2021.

The biggest income spike that many retirees experience are RMDs which begin at 72. This makes avoiding IRMAs more difficult since the RMDs increase the retiree’s yearly income and this cannot be legally avoided. However, a good financial planner would offer the solution to do small Roth conversions each year leading up to the age of 72 to soften the blow of RMDs.
For example, a retiree can take small distributions from their IRAs each year until 72 and put this money into a Roth IRA where it will then grow tax free and no RMDs will ever be required. Yes, each year they do a conversion they will experience a tax bill for the distributions but if done correctly, it can be engineered to stay below the IRMAA limit. Therefore, leaving you with the same Medicare premium you have now and decreasing your future RMDs in the process. This would help your future ability to avoid IRMAAs due to significant RMDs.

There are some slight exceptions to the IRMAA rule brought to you by the Social Security Administration. People can file an SSA-44 form to report a “life-changing event” such as a death of a spouse, divorce, or stopping work. If approved, it will reduce the IRMAA for that year.

Lastly, there is also a premium that can be paid for Part D if you choose to be enrolled and you’re a high-income earner. The Medicare 2023-part D premiums by income are listed below.

For more information go to https://www.cms.gov/newsroom/fact-sheets/2023-medicare-parts-b-premiums-and-deductibles-2023-medicare-part-d-income-related-monthly