The 2025 Medicare Surtax For High Income Retirees AKA Irmaa

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Welcome to Finishing Well. We're certified financial planner, Hans Scheil, and today's show is the 2025 Medicare surtax for high-income retirees, known as ERMA, which, you know, that was a mouthful. When you heard that, it may sound complicated, but interestingly, I think you might find through today's show that it gets simplified. And a lot of people, when you think about your faith or you think about the Bible, it seems like it could get complicated. But I have a story that actually happened this week that just touched my heart to show you how simple it can really be that we have a dear member of our church, and her daughter, unfortunately, got this horrible kind of brain cancer that is spreading through her brain so fast that it would look like she doesn't have very long at all to live, and she is in hospice. And through that process, unfortunately, she lost most of her ability to speak and also lost her memory.

And so speaking to her is obviously a difficult thing. And the other day, a social worker came in there, actually a chaplain, and wanted to share Jesus with her, but apparently it was pretty awkward because she couldn't speak, and then eventually the chaplain just said, well, let's just sing a praise song. And the mother suggested, why don't we just sing Jesus loves me? And immediately, Kenny, the wonderful lady that I'm talking about just sang out, Jesus loves me, this I know for the Bible tells me so. And you think about the simplicity of that, you know, there's this famous theologian called Karl Barth, he was a Swiss German, and he wrote several thick, thick books on theology, and one time he had a student ask him, well, Dr. Barth, could you give us the simplified one-sentence answer to all that you're trying to explain here?

And he said, sure, Jesus loves me, this I know for the Bible tells me so, right? And I think through today's show, as you get the idea, or it sounds really complicated and all that, but when you get the core idea, I'm not going to say you're going to like it as much as Jesus loves me, by anybody's stretch of the imagination. But as you realize what kind of what it is and what it isn't, hopefully you'll just see is it's another part of your financial plan that really provides opportunities for you to do good, smart planning, and realize that, you know, it's a blessing to pay taxes, right? It beats not paying taxes because you have no income, right, Hans? Well, sure. And I don't try to convince people that are paying IRMA that it's a blessing, but maybe we'll do a little bit of that today. But okay, so let's take IRMA as an acronym, I-R-M-A-A, and it stands for Income Related Monthly Adjustment Amount.

This is as clear as mud. I mean, and I think that this is not an opposite title. This is just a distraction title.

I don't know if the people really intended it, but you can look at the acronym IRMA, and then you can look at those five words, and no way are you going to come up with something like this, okay? So what I prefer to do is rename it. It's the Medicare SERT tax for high-income retirees, okay? Just that simple. If you have a strong income in retirement, you're going to pay extra for Medicare. Just that simple.

And it's anything but simple in the sense when you try to get into the details of it, because it's almost like it's written in a foreign language. So I'm going to try to break it down, and today's show is you've got new numbers for 2025. I mean, it's the same old IRMA.

New amounts, because the amounts are a little bit higher that you pay at each bracket, and then increased brackets, but fundamentally it hasn't changed that much. And so the income tax return that we're using in 2025 for IRMA, that the government's using, is your 2023 income tax return. So right off the bat, it's almost like it doesn't make sense. So I'm paying my IRMA in 2025, and they're basing the fact whether I have to pay IRMA or not based upon my 2023 income. It's two years in arrears. So when you break it down, that's not all that complicated.

But then people start asking why. I mean, why don't they use the income that I pay, that I make in 2025 to determine how much I pay in 2025? Well, they don't know how much you're going to make in 2025 at the beginning of the year, so this is just the way they set it up. Like it or leave it.

I mean, it is. So we're going to use your 2023 income, and for those of you that are on Medicare, you should have gotten a letter if you're eligible for IRMA or you're required to pay IRMA. You got a letter in November.

I got mine in the very end of November. And some people refer to it as a love letter from the government, but it comes, and it lays out the whole thing that we're talking on the show here today. And actually, if you go in and find the YouTube video, you're going to find an IRMA letter sent to an individual that is in there, and it lays out the whole thing in the letter, but nobody reads the whole letter.

They just look for the amount. And then many of them get angry, you know, when they go there. So talk to me a little bit, Robbie, but why don't you react to what I've talked about here so far? Right.

And again, it's a tax. And so, like you said, you don't know it. And I think a big part of the reason why we want to do this show is that surprise is hurt, right?

And hopefully through today's show, you're going to hear what those brackets are. So you're like, if you have that kind of income, you won't be surprised by this tax, but just see it as a planning idea of, oh, yeah, this is coming. And isn't that usually the case when people don't expect it and never heard of it, that that's part of the reason that they essentially really upsets their world?

Well, it sure does. And then, you know, once they get a little bit of understanding and they understand the amounts, which then, you know, then they start asking why, you know, well, why is this put in there and is this fair? And, yeah, I mean, it's just people get angry about this. And, you know, I don't necessarily try to get them un-angry, but, you know, I'm going to sit with them a little bit and try to help them understand it and give them the knowledge that I understand it very well and Tom does and all the other people that works with us. So maybe they can just put it off on us that we'll, you know, we'll have an understanding and tell them how to react to it appropriately.

But let's talk about where it starts. So if in 2023 you're a married couple, your combined income, even your investment income, your work income, the amount on your tax return was $212,000 together and you're $1 into that, you're going to pay some Irma. Not a huge amount of Irma, but that bracket is $212,000 to $266,000.

That's the starting bracket of Irma. Now, if you're a single person, you're single in 2023 and you had a combined income from investment income, work income, doesn't matter where it came from, taxable income of $106,000, then that's going to be the number for Irma, exactly half of the married filing jointly. And what's going to happen is for your Part B, you're going to pay $185 a month just like everyone else on Medicare for Part B, but then you're going to pay an extra $74 a month and an extra $14 a month for your Part D to the Irma people or another $88 on top of the $185. So it's not necessarily too penal at that point, enough to anger you, but when you get up to the higher levels of income, Irma becomes an extra $530 a month on top of the $185 and people look at that and for each person in a couple, they're paying over $700 a month just for Medicare, Part B and Part D, and that tends to get people irritated, but then you look over at the income and you can say, well, these people can afford it, and they can, but that doesn't necessarily make it that they're not going to get upset about it, not want to plan around it, but that's kind of it. I mean, you just got to pay for most of your Medicare instead of the government if you make a lot of money in retirement. Yeah, and I guess, you know, me with my positive attitude, I think, well, if I'm giving that money, the good news is there's people that aren't paying near as much into Medicare because they just don't have any income, but yet Medicare is paying out their benefits a lot of times bigger than they're paying out for the people with the higher income because they didn't have the health care that they would have had if, you know, they'd taken better care of themselves, however you want to put that, but the bottom line is it has to be paid for at some level, and, you know, it's kind of neat to think that in a way, you know, if you're paying Irma that you're really helping out some people that probably really need it and you can literally save lives. Well, sure, and let's get clear, this highest level of Irma is about half what my health insurance cost before I turned 65.

I was paying about 1,500 bucks a month every month through the business here to cover just me, and then I was paying about the same amount to cover my wife, so about 3,000 bucks a month for health insurance, and now I'm on Medicare and I pay Irma, I don't know, 600, 700 bucks a month, something like that, and then I pay for my supplement, you know, like 150 bucks a month, and I'm still much better off and I got better coverage. So in the end, this is – and I can afford it, and when I retire, whenever that is, I hope it's never or I hope I'm real old, but I will file an appeal, and so in the second half of the show, we're going to get into if you're going to have a change in income or you're going to retire, what you can do to appeal this. So there's some avenues, but I want people to just get a flavor of it here in the first part of the show. Right, and that's just it, that when you reach the brackets, which are completely different than income tax brackets, which, you know, the second you go a penny over the bracket, then you get hit for a specific amount, and so as you go through the brackets, you know, you're going up a very specific amount based on where you are on the bracket. But the other neat thing, I think, is that the good news for 2025 or as we're doing this show is they raised the brackets a little bit so that, you know, those didn't have quite as high income aren't going to make the bracket. Of course, if you got into that bracket, they raised that a little bit too, the amount of Verma, right?

They did, that's exactly right. And we want to remind you right now that the show is brought to you by CardinalGuide.com, at CardinalGuide.com. If you go there, you're going to find the Seven Worries tab, and today's tab is under Medicare. So, you know, all this Part A and Part B stuff, that's Medicare stuff, and Irma is Medicare stuff. So if you go to that tab, you're going to see in the show notes exactly these brackets, exactly the amounts, all that kind of information, as well as a wonderful YouTube video, all on the same subject there on the Medicare tab on the Seven Worries tab. And then, of course, to contact Hans and Tom so that you can just do a custom one pretty easy, a lot easier if you ask me, just dial that number. Or, of course, Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement, it has stuff in there on Irma, they have wonderful stuff, so you can get all that in Hans' book. And, of course, we've got a whole lot more coming up, as Hans described, on this show on Medicare Cert Tax for High-Income Retirees.

We'll be right back. Investment Advisory Services offered through Brookstone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other.

Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. Welcome back to Finishing Well, a certified financial planner, Hans Schall. Today's show Medicare Cert Tax, or we should say 2025 Medicare Cert Tax for High-Income Retirees, sometimes known as Irma or Aunt Irma as opposed to Uncle Sam, right? We even had a cartoon where I had an artist here that was working with me and she drew a pretty sweet-looking Aunt Irma to go right next to Uncle Sam. And it says, the Medicare tax lady. So a couple of things I'll say more about the brackets is, you know, Irma is an extra amount on top of the 185 bucks a month that you pay for Part B and on top of the premium that you pay to the insurance company for your Part D. And I ran, like, how much of an increased tax is this on your taxable income? And at the lowest levels, it's like an extra 1% tax. So if you were in an effective tax rate of, like, 17%, just under the regular tax system, then you're going to be at 1 to 2% more by the time you pay Irma. I mean, it's just a calculation to put it in perspective.

And it's no small amount. It is intended that the government is saying you're going to have to finance your own Medicare Part B and Part D. They're not throwing in anything if you're at the highest levels of income. They're making you pay for your own Medicare. Now, we talked before is if your 2023 income was high because you were still working or maybe you had something happen during that year that caused the spike in income and you've had a life event, like retirement is a life event, even a reduction from full-time to part-time is a life event. Marriage, divorce, your spouse dying, you stopped working, you reduced hours. There's a whole list of life events. If that's happened within the last year or so and you're going to suffer a loss of income, you're going to make less in 2025, we can appeal this. Yeah, that's awesome. And that process is not necessarily something you want to try at home either, is it?

No. When people try it at home, it's been our experience, they come to us afterward and they got turned down. And it usually is because they gave them way too much information. You know, they wrote a small novel on the Irma form and they editorialized Irma as well. So when we help people with appeals, there's none of that business, okay? And so what I'm going to tell you is if you want to appeal Irma, you know, number one, you can give us a call and we can talk to you and we can kind of give you some personal guidance and we can even help you fill out the form.

We can't do this for you, but we can guide you as to what to put on the form. And what I'll add with that is people that do it themselves, a lot of them, they don't read the directions. I mean, they just think they're men, you know?

I'm that way too. But I mean, it's just if you didn't have a life event and they give a list of what the life events are, if one of those things didn't happen, you're not eligible for an appeal. Right.

Okay. And the one that we generally work on is retirement. I mean, okay, so I used to work in 2023. I worked and I made that income and my wife worked and she made her income and that raised the number.

Now it's 2025. I'm retired or retiring and my income is going to be a lot less. That's a perfect candidate for an appeal. I had an attorney that is a friend of mine who greatly reduced his hours at 65. I mean, he's a partner in a firm that he started like 10 years ago. He worked for another big firm and then, you know, this was his firm to kind of wind down from 55 to 65. And he cut his hours down from like five days a week to two days a week.

Yeah. And, you know, that was enough, a reduction in hours. He had the lead partner say that and then we appealed his Irma.

It still didn't get him under the bracket, but it lowered him to quite substantial. So you got to have a life event, number one. And if you have that, you're eligible for appeal. Then you need to have a reduction in income. Now the nice thing about the reduction in income is we can sit down with you and create your income once you're retired because I'm presuming that's either going to be Social Security, maybe a pension, maybe not. And, you know, if no pension, it's going to be a deduction from your retirement account to live on. So to a degree, you're in control of your income in retirement. I mean, you're able to pull this money out. You say, well, I have to pull the money out. Well, if you're fortunate enough to have a second bucket of money, which you've already paid taxes on, you can pull money out of your regular savings, live off it, and it doesn't count as an increase in income. So I don't want to get too detailed about this. We can construct your income for the rest of 2025, and we're going to put that down on the appeal form.

My income used to be this. Now it's this. I had this life event. You don't tell them any more than that. Okay.

I mean, that's it. Right. You send it in with one piece of mail from your employer verifying the life event. Okay. And we send people back to employers all the time and have them construct a letter that just says, you know, Joe Smith stopped working July 10th, 2024. I mean, that's literally all the letter needs to say. And we slap that on there and we have a very good success rate with these appeals.

Sounds good. Yeah. And by the way, if you get turned down, you can apply again. We do that, and we even have had a couple of ours turned down, and then we apply it again. I mean, there's nothing to stop you from an unlimited amount of appeals.

We just wear them down and we're going to get there. Now, if you don't have the income reduction, you're just going to have to pay it. Now, tell you another place this comes into play is people get so angry about this IRMA when they first learn about it and they feel like it's just something set on that they didn't know about and it's unfair, and then they start doing all their financial planning around IRMA. And that makes no sense because IRMA is for one year at a time. So every year, they're going to recalculate your IRMA. So what you're getting mad about and doing financial planning for is just one year of IRMA. And so what I'm leading up to is I'll have people that will stop doing Roth conversions that otherwise make sense, but then they're going to say, I don't want to do that because it's going to drive my income up, and then two years from now, I'm going to be paying IRMA for one year based on these Roth conversions. So I'm not doing it. Do you think that makes sense?

Probably not. Again, that's the beauty of having somebody that can actually look at it and say, well, from a planning standpoint, here's how much money you're going to save over the next four years if you go ahead and bite the bullet right now. And not to mention when you really may need the money, you're going to have it tax-free with that Roth conversion that is – plus, there's so many advantages to a Roth conversion, the more I have thought about them over the years since you've been teaching me. It's just a beautiful thing that not only are you able to get the money tax-free, but it's making money tax-free. Well, sure.

Let's just take it for instance. Let's say we've got an income of $100,000 a year in retirement or $120,000 a year and well under the IRMA threshold. And then we sit down here and we look at all the tax brackets and we look at how much you have in your retirement, which is generally a lot if you're looking at a Roth conversion, and we decide we're going to convert this year 180 grand. So we're going to voluntarily raise our income from $120,000 to $300,000.

Put us into IRMA, we're going to have to pay IRMA. Well, why are we doing this Roth conversion in the first place? Why are we doing this $180,000 Roth conversion? Because then that money inside the IRA in the Roth is going to be tax-free for the rest of your life. It's going to grow tax-free. If you leave it in there for your whole life, it's every year, it's tax-free. The increase is going to be no taxes now or in the future and then if you leave it to your children, it's going to go tax-free to them or you leave it to your spouse.

So a Roth conversion is a planning strategy that has implications for the remaining 20 to 30 years of your lifetime and then even beyond your lifetime for your children and your beneficiaries. So to not do that because of an expense of three or four thousand dollars of extra IRMA just because you're mad about it, it just doesn't make sense. Right. And not to mention the Bible's pretty clear about making decisions when you're angry or doing other things when you're angry.

Like, you know, don't sin. Well, yeah. And, you know, this is how I earn my living is sitting down and telling somebody that's angry about IRMA that has just told me they're not doing X, Y, and Z. At the beginning of the show, we talked about this is not all that hard. It sounds complicated because that's such a crazy name, but I like the idea to simplify that to IRMA, meaning you're going to pay more for your Medicare because you have an higher income.

There you go. And then planning around that is based on your income and a wonderful reason to contact, in my opinion, cardinalguide.com. Remind you, this show is brought to you by cardinalguide.com and at cardinalguide.com, there's the seven worries tabs. And this one is on Medicare because IRMA is part of that. And so if you go to the Medicare tab right there, you're going to see these brackets, Live and Live in Color.

In other words, you've got a bracket for people that are married and you've got a bracket for the people that are single. And all that's there, as well as a wonderful YouTube video that, again, describes all this stuff to give you more clarity. Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement has some beautiful illustrations on IRMA and wonderful understanding there in his book, also at cardinalguide.com. But, of course, the easy way to go about all this to me is just contact Hans' page at cardinalguide.com. Hans or Tom, they will fix you up.

It will be custom-made to your income and all those things. And, you know, a lot of times there's something completely out there in your particular situation that just changes the whole thing that normally you would be doing. And so it's a wonderful thing to have somebody get the big picture over all your personal situation because I can tell you it sure has helped me a lot.

Cardinalguide.com. Great show, Hans. Thank you and God bless you. The opinions expressed by Hans Schile and guests on this show are their own and do not reflect the opinions of this radio station. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such.

Any statements or opinions are subject to change without notice. Investments involve risk and unless otherwise stated are not guaranteed. Past performance cannot be used as an indicator to determine future results. Any strategies mentioned may not be suitable for everyone. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation.

Finishing Whale is designed to provide accurate and authoritative information with regard to the subject covered. Investment Advisory Services offered through Brookstone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other.

Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. We hope you enjoyed Finishing Whale, brought to you by CardinalGuide.com. Visit CardinalGuide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments and taxes, as well as Hans' best-selling book The Complete Cardinal Guide to Planning for and Living in Retirement and The Workbook. Once again, for dozens of free resources, past shows or to get Hans' book, go to CardinalGuide.com. If you have a question, comment or suggestion for future shows, click on The Finishing Whale Radio Show on the website and send us a word. Once again, that's CardinalGuide.com. CardinalGuide.com. This is the Truth Network.