Chris Robinson, ChFC
You turn 65 and begin Medicare insurance. You look at the monthly cost and think that it is not so bad. You can easily look up how much your payment is going to be for your Part B and Part D. But it may cost you a lot more than you imagined!
Welcome an unfriendly additional premium called IRMAA, or Income-Related Monthly Adjustment Amount. Basically, the more you make, the more you pay. Medicare looks back at your income two years ago to determine the price you will pay for parts B and D. So, income in the year you were 63 determines how much more you will pay when you are 65. The calculation is based on your Modified Adjusted Gross Income, or MAGI. So, what income counts for MAGI? Almost everything counts, including tax-free municipal bond income.
If you have MAGI that is as little as $1 over the threshold limit, then you must pay the full adjustment. There are actually five different levels of income with five different levels of additional premium. The levels differ with single or jointly filed tax returns. At the most punitive level of income, an additional $419.30 for Part B and $81 for Part D must be paid per month per individual!
How to Avoid Additional Premiums
Consider Roth Conversions, Qualified Charitable Distributions, and controlling your dividend and interest income to avoid IRMAA adjustments.
Qualified Roth withdrawals are tax-free and do not count toward MAGI for Medicare purposes. So, consider Roth conversions now!
Qualified Charitable Distributions, or QCDs, allow each IRA owner to donate from their IRA straight to charities, with a limit of $105,000 per year. The IRA owner must be at least 70.5 years of age at the time of the QCD. So, you might consider a QCD if a Required Minimum Distribution pushes you over the MAGI limit. You should consider making a QCD from your IRA if you are over age 70.5 and are giving to charities, including your church. This donation is probably not tax deductible if you claim the standard deduction on your tax return.
Control your dividend and interest income in after-tax accounts. Perhaps use asset location to put your more interest- and dividend-producing investments in your tax-deferred accounts, thereby limiting your taxable dividends and interest.
If you have any specific questions about limiting the impact of IRMAA penalties on your Medicare premiums, call or email us.
Financial Success Doesn’t Happen by Chance.
Contact lead advisor Chris Robinson, ChFC, at our office at 940-464-4104 to schedule a time to discuss your IRMAA and other IRA questions.
RFG Wealth Advisory in Argyle, Texas, is an independent, fee-only Registered Investment Advisor firm that always puts our clients’ interests first. We have a transparent, simple fee structure that’s easy to understand. Call us today!
Investment advice is offered through RFG Wealth Advisory, a Registered Investment Advisor.