Let Me Clarify

We’ve all heard of Medicare. However, there are many important details that are often misunderstood regarding what will likely be the most important medical coverage you will have in your retirement years. One of those items is “IRMAA” and how it can sometimes be at the center of retirement income and tax planning.

What is “IRMAA”?

IRMAA stand for “Income-Related Monthly Adjustment Amount” and is applied to Medicare premiums for those with higher income levels in retirement. Essentially, it is a sliding scale used to adjust Medicare Part B and Part D premiums depending on retirees’ tax fining status and Modified Adjusted Gross Income each year.

What are the income thresholds for IRMAA?

It’s important to note that the thresholds for IRMAA are not the same as traditional tax brackets or other phaseout ranges. Additionally, these are based on Modified Adjusted Gross Income, specifically the taxpayers’ Adjusted Gross Income + tax-exempt (municipal bond) interest for a given year. For 2022, the thresholds are as follows:

Single	Married Filing Jointly	Monthly Part B Premium	Monthly Part D Premium
$91,000 or less	$182,000 or less	$170.10	Included
$91,001 to $114,000	$182,001 to $228,000	$238.10	$12.40
$114,001 to $142,000	$228,001 to $284,000	$340.20	$32.10
$142,001 to $170,000	$284,001 to $340,000	$442.30	$51.70
$170,001 to $500,000	$340,001 to $750,000	$544.30	$71.30
$500,001 and above	$750,001 and above	$578.30	$77.90

*Data from the Social Security Administration

How can I plan for IRMAA?

While there are a variety of variables to consider in your broader retirement plan, IRMAA should be at the top of the list as you can see how expensive premiums can become. Further, note that these are “cliff” thresholds, meaning that a single dollar above each limit triggers larger premiums. The main thing you can do is work through a detailed long-term retirement income plan.

It’s not uncommon to put blinders on and focus too much on a single planning point. For instance, traditional rules of thumb might tell retirees to take discretionary distributions solely from non-qualified assets, followed by qualified accounts and then Roth IRAs. However, that could result in many retirees being forced into higher brackets later, paying much higher premiums than the income taxes savings realized in early years. This isn’t always the case, but just an example of a potential pitfall of not looking at how all aspects of your financial plan fit together.

Can I report more accurate current income?

When determining premiums, the Social Security Administration looks at the income reported on your tax return from two years prior; similar to the FAFSA for student aid. Because of this lag, there are many individuals who are expected to pay higher premiums due to higher earnings prior to retiring, even though they may be living a more modest lifestyle in retirement. This is a frustration for many Medicare recipients.

Pro tip: there’s a form for that!

Form SSA-44 is used to report life-changing events (marriage, divorce, retirement, etc.) and update current income. In the event of retirement with income below one of the higher thresholds, this form would need to be filled out each of the first two years of retirement and for each spouse, if married.

There is so much more when it comes to Medicare, income, and tax planning in retirement. I wish I could cover it all! As with any other financial planning, once you scratch the surface, it becomes much more complex and specific to each situation. So, if you find yourself with more questions, feel free to ask or consult with the appropriate professionals.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual.