IRMAA Explained: How to Avoid Paying More for Medicare

Erin: Jordan, good to see you getting back to basics today. What is IRMAA and how does it affect what you will pay for Medicare Part B? If the Social Security considers you a high income beneficiary, you will pay a surcharge known as the income related monthly adjustment amount.

How high is high income?

Jordan: It’s not that high actually. If you look at this chart for single and you got joint returns, you’re making 109,000 single or 218,000 for married, you’re getting bump ups in that IRMAA and you can see the thresholds and that’s on a monthly basis. And a lot of people don’t realize IRMAA’s tricky.

They actually, if you’re just $1 over that threshold, they are going to, it’s kind of a cliff effect where they’re going to charge you that higher excess premium. So we got to be mindful of these things and make sure that we’re not blindsided by IRMAA because people just hate paying it.

So let’s make sure we have a plan so you don’t pay it or don’t unexpectedly have to pay more net excess premiums.

Erin: Yeah, and can you just break this down? How does this relate back to Medicare Part B?

Jordan: Yeah, so when it comes to Medicare Part B, if you have too much income, they actually have a two-year look back where they’re going to look at your income. And then because of that higher income, two years later, they charge you more in those excess premiums for Medicare Part B. So we need to make sure you have a plan and you don’t just kind of get blindsided by, hey, maybe you did a Roth conversion, maybe you had some more income that year.

And if you’re just that $1 over that, two years later, you pay in that excess premium more money per month. I’m glad you mentioned that two-year look back. I’m sure our observant viewers know notices, Medicare 2026 Part B premiums by income.

Erin: If your filing status and yearly income in 2024 was, I mean, if this weren’t complicated enough already, Jordan, but this is why sometimes a one-time financial event two years ago takes people by surprise. Walk me through some of those events.

Jordan: Yeah, there’s a lot of events that could occur.

• Maybe that’s maybe you did a Roth conversion.
• Maybe you sold a house.
• Maybe you had a mutual fund and they kicked out a capital gain that you didn’t plan on and that put more capital gains in your tax return.
• Maybe you got a side job and you got more income.

There’s a lot of moving pieces why that income could come into play. Maybe you made a big purchase, but like we got to make sure before you do those Roth conversions, before you have a capital gain, before you make a big distribution, you have a plan and you make sure you look at those Medicare excess premium thresholds. Even more confusing is it doesn’t align to our tax brackets.

So many moving pieces. That’s why we need to be very diligent and intentional about what we’re doing so we don’t pay more on those excess premiums.

Erin: Yeah, I really got to thread the needle there. So, let’s talk through three strategies then to reduce your IRMAA.

And this is funny, Jordan, because I heard you mentioning Roth conversions as maybe a landmine, but it’s also a strategy to reduce IRMAA. So, explain how that works, please.

Jordan: It depends on the timing, right? So again, we create a financial plan for our clients and maybe they’re 62 and they retired early and maybe their income’s lower. This is maybe a great opportunity to do Roth conversions and pay the taxes.

Well, historically, we have lower rates still. And we don’t have to worry about that IRMA because two years later, it’s still 64. So we don’t have to worry about that. But also we need to make sure we’re strategic and smart because when we do that Roth conversion, even if it is at say 65, it maybe just retired 65, we can file the form to get an exception so we don’t have to pay that IRMAA that year you retire. We got to look at all these different pieces and see, does a Roth conversion make sense?

And although people hate paying IRMAA, when we show the math and say, hey, maybe if you do pay a few $100 in IRMAA based on your plan, you might be saving 10s of thousands of dollars in Roth conversions and taxes. So it still might make sense, but we got to crunch the numbers.

Erin: And as we work to kind of get more of that tax-free money, another good option that you recommend considering HSAs.

Jordan: HSAs are great. You get a tax deduction, you put it in, gross, tax deferred. You take it out for those qualified healthcare expenses. It’s taken out tax-free. It’s a great way to kind of leverage that and pay the premiums for those Medicare by using that health savings account. If you have a health savings account, highly recommend it to max that out if you can.

But another thing that you could do is if you like giving to charity different things, you can do a QCD, a qualified charitable donation. So again, a little caveat here, you do have to be 70 1/2 to qualify for this strategy, but once you are 70 1/2, instead of having more income from those RMDs and pushing to higher IRMA brackets, maybe you don’t need that income and you love giving to charity, you can send that money directly to the charities of your choosing from your IRA custodian and that classifies as a QCD and you legally pay 0 taxes.

Erin: Yeah, I love that strategy. Well, again, Jordan, so much to consider with this one. It really does feel like you’re threading many different brackets and needles here. So if somebody would like to sit down with you, talk through IRMAA, get a plan in place now, what’s the best way to reach you?

Jordan: Yeah, I’ll say as a firm, we’re very diversified in our approach. We have an entire Medicare team, financial team, we have a tax team. So our Medicare team and our financial team and tax team, we coordinate all these strategies to make sure you pay the least amount of money in IRMAA and taxes and you get the biggest benefit.

So call in our main number, 847-499-3454 is the first step. We can help you with Medicare, help you with IRMAA, and help give you that peace of mind that you deserve.

Erin: All right, Jordan, thank you so much for your time today. And everybody listening, please stand by for the QR code at the end.

Jordan: Thanks, Erin.