IRMAA

As you plan for retirement, one essential component to consider is the Income-Related Monthly Adjustment Amount (IRMAA).

The Social Security Administration (SSA) calculates your IRMAA based on income levels provided by the Internal Revenue Service - see the 2024 IRMAA tables. Medicare will determine next year's IRMAA charge in the 4th quarter of 2024 but you can view the projections here. Because IRMAA calculations have a two-year lag time, now is a great time to review your 2023 tax return to determine if you may have a surcharge for next year.

This Medicare surcharge can significantly increase your Part B and Part D premiums if your modified adjusted gross income (MAGI) exceeds certain thresholds.

There are multiple brackets, each with increasing surcharges. This means an increase of $1 in income could push you into the next IRMAA bracket, adding hundreds of dollars to your annual healthcare costs.

The most effective way to keep IRMAA from creeping into the next tax bracket is by decreasing your MAGI. Below are some strategies to consider . . .

Qualified Charitable Distributions (QCDs). If you are over 70.5, using QCDs from your IRA to donate directly to a charity can reduce your taxable income.

Tax-Efficient Withdrawals. Strategically plan your withdrawals from various accounts. Withdrawing from accounts with lower tax implications first can help keep your overall income within a lower bracket.

Roth IRA Conversion. Consider converting traditional IRA funds to a Roth IRA before retirement. Although you will pay taxes on the conversion, future Roth withdrawals are tax-free, helping to lower your MAGI.

Timing of Income. Be aware of the timing of your income. If you have any control over when you receive certain types of income, such as capital gains or distributions from retirement accounts, it might be possible to keep your income below the IRMAA threshold. 

Managing these factors can make a significant difference in preserving your retirement income and maintaining your financial well-being. 

Strategy is Everything

Successful investing is one thing, but looking ahead and strategically planning future income, maximizing tax-free withdrawals, and managing tax brackets can be challenging. Let's connect on a complimentary strategy call and discuss the best plan for you moving forward.