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3 Strategies to Reduce Your IRMAA for Medicare Part B

Planning Matters Radio / Peter Richon
The Truth Network Radio
April 27, 2024 9:00 am

3 Strategies to Reduce Your IRMAA for Medicare Part B

Planning Matters Radio / Peter Richon

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April 27, 2024 9:00 am

If the Social Security Administration considers you a “high-income beneficiary,” you’ll pay a surcharge known as the Income-Related Monthly Adjustment Amount (IRMAA). That means, if your modified adjusted gross income is more than $103,000 for single filers or more than $206,000 for those who are married and filing jointly, you'll be paying the IRMAA penalty.

However, as Peter with Richon Planning explains to Erin Kennedy, there are 3 strategies you should consider to reduce that penalty. They are:

  1. Roth IRA Conversions
  2. 2. Health Savings Accounts
  3. 3. Qualified Charitable Distributions

There are also instances when you can apply for an IRMAA waiver. To avoid that IRMAA penalty, proactive planning is key. If you'd like to talk through these strategies with Peter, please call (919) 300-5886 or visit #IRMAA #WealthManagement

#RothConversion #Retirement #FinancialPlanning

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Peter, good to see you and welcome back, everyone. Today we are talking through three ways to reduce your Irma for Medicare Part B. If the Social Security Administration considers you a high-income beneficiary, you will pay a surcharge known as the income-related monthly adjusted amount. I'm glad I have that written down, Peter, because it is complicated.

Here's what it looks like, though. The SSA uses your modified adjusted gross income to determine your Irma. The first tier starts at more than $103,000 for single filers or more than $206,000 for those who are married filing jointly. Before we get into how to reduce your Irma penalty, can you please explain how it works?

What are some of the things that could cause this penalty? Yeah, means testing is the short version of this. Your healthcare, Medicare premiums are means tested based on your income. So the higher your income, the more you are going to pay for your Medicare premiums. And we have a progressive tax system and the more you earn, the higher percentage of your income you pay in income taxes.

So this is nothing new. It's just that this actually catches a lot of people by surprise because it's not as well known or discussed that, hey, if you've got income of a certain amount, again, $103,000 and $206,000 single or married. I like that it's proportional, that they make that part at least make sense.

But you begin to pay higher monthly Medicare premium costs, which generally are just deducted from your Social Security, but it means you get less of your Social Security. And so we need to be aware of this as we are planning some strategic financial moves or if this is where your income is just going to be throughout the duration of retirement, you absolutely need to be aware of this and potentially you could take some steps to control it pre-retirement or even once you're already in retirement. And I think we're going to talk a little bit about those steps, which by the way, Erin, I do want to mention Planning Matters Radio voted by the Maggie Awards, 2024's best local podcast, always trying to bring some important information for the savers and investors. Congratulations, Peter. Yeah, that's great. I mean, such a compliment by your community who voted for you. That's wonderful news. Yeah, absolutely. And appreciate your part in that. Yeah.

Yes. I wanted to point out, though, that this is a two-year look back. Somebody who's looking at this table is going to be a little bit confused to see 2022 on here.

Right. So what if we worked for 2022 and 2023 and had that higher income and now in 2024, 65, we're retiring, we're going on Medicare and whoa, what is this? I'm getting charged extra on my Medicare.

Well, they look back two years. So if you did some Roth conversions or you pulled out a large amount from retirement accounts, maybe you needed some capital to buy a house or do a remodel or some big expense came up or you were working within the past two years, that can actually impact this Irma surcharge where we are now are in retirement where 65 were not earning that kind of income. But, oh, Medicare and Social Security is looking back two years at the income prior and making the determination based on that. So this is actually one area where there do seem to be some reasonable people behind the scenes in works at the government and Social Security Administration where you can apply for an exception and you give reasonable notations as to why that is not representative of your current and expected ongoing situation. Hey, that income represents my working career. I am now retired. I am in a fundamentally different situation and exceptions can be granted on this, but you do have to apply for that. So yeah, it catches a lot of people off guard when the income from two years ago shows up as determining what that Medicare premium is going to be for this year.

Of course. So now let's talk through those three strategies to reduce your Irma and the first is Roth conversions. Why is that? Well, this is a great one because Roth withdrawals do not count on your tax equation to determine whether you are going to encounter Irma or not, but it is a double edged sword because it's, it's not the conversion itself that helps you avoid it because the conversion is one of those events that couldn't create taxable income, right? So if we do the conversion the year before, well now that's going into the equation to determine if we are going to experience Irma or if we do large conversions while we are a Medicare recipient that is going to count against us. It's the withdrawals from the Roths that are advantaged and we've got a five year waiting period from the time of conversion before we can make the withdrawals. So this is something that has to be done in pre planning and with the full knowledge that the conversion itself actually could create the very situation that long term we are trying to avoid.

Now I do think that when you compare the Irma surcharge to the taxation of your IRA versus what you can save by converting to Roth, it's still well worth the consideration and there are certain cases where purposefully encountering Irma might make sense, but that's really a matter of sitting down and crunching all of those numbers, having a very comprehensive discussion about, well, we're going to save money over here, but it's going to cost you a little bit money over here. Does that work out and equate and make sense? Really is important for the person who is proactively trying to manage their retirement expenses, both on the cost of taxes and the cost of health insurance and Medicare. Right. A lot of moving parts.

Yeah, there are. The second strategy would be to open and invest in a health savings account. Again, this is one where it's the pre planning side of it because if we open and invest in the health savings account, that's fantastic that we've got it, but it's the withdrawals from the health savings account that are tax free if used for medical expenses. So it's going to help prevent some unexpected medical expense or higher out of pocket medical expenses from being taxable and therefore causing us to potentially be subject to Irma. And so again, this is a vehicle where if properly utilized, the growth and the income from it can be tax free for qualifying medical expenses. Of course, the Roth, the same thing is to be said, it can be tax free if used properly. Those don't have to be medical expenses with the healthcare savings account.

It does. And so there, there is the ability to convert a healthcare savings account over to an IRA at 65, but there also may be some reason because of Irma to consider not making that conversion if we can still use those dollars for qualifying healthcare expenses, which you would think you could at 65 and beyond. Yes. And then our third strategy of course, would be a qualified charitable distribution, right? So what if now we are 73 even starting as early as 70 and a half, but 73, the government starts requiring you to withdraw money from your IRAs. Well, if we've got a substantial balance, that RMD, the required minimum distribution alone, plus all of our other income could in fact create the income that puts us over the thresholds to now encounter Irma.

So if that's the case, and perhaps we don't necessarily need that income, the IRS is just forcing it upon us so that they can collect the tax money. Well, what better way to sort of get around that, especially if you are already a charitably inclined individual than to satisfy the RMD requirement and also donate the funds directly to your church, your charity, your organization, your 501c3 cause and have that gift be completely tax-free as well as not a taxable event on your income tax returns and therefore not cause the situation where you encounter this Irma. So again, you know, if you just take the RMD, the required minimum distribution, that is 100% fully taxable income, but you can satisfy that requirement by making it a donation. That's called a QCD, qualified charitable distribution.

And if you do that, it does not cause a taxable event on your return and therefore might keep you below those thresholds that you would otherwise incur if you took the RMD. I just love that strategy. Such a win-win. Peter, clearly, as we mentioned, you know, some advanced planning and proactive planning necessary with this. If somebody would like to talk through these strategies with you, what's the best way to reach you? Right? Yeah.

I mean, paying the least amount in taxes in retirement is a winning strategy because it means you get to keep and spend more of your money or leave more behind. If you'd like to talk that over, give me a call at Rashan planning, 919-300-5886, 919-300-5886. You can email me peter at Of course, you can go to our website, It looks like and get in touch that way. I also have a great site up and available online.

It is, That is your retirement tax bill calculator. You can actually enter in your information and see what your likely tax bill throughout retirement would be versus what you can proactively manage it for by doing things such as Roth conversions.

Don't act on that information without consulting a professional, but you can see the numbers side by side and the difference in being proactive versus just deferring to the IRS's default plan for you often is a staggering difference in how much money you're going to pay in taxes or that you get to keep. Right. Absolutely. All right, Peter, thanks so much for your time today. All right. Thank you, Erin. Appreciate it. Hey, everyone.

Peter Rashan here. Hope you enjoy the content. As always, make sure that you like, subscribe, share the videos with others that may find this information helpful, and as always, you're welcome to be in touch or to submit questions or comments.

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This has been Planning Matters Radio. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to seek investment tax or legal advice from an independent professional advisor. Any investments and or investment strategies mentioned involve risk, including the possible loss principle, advisory services offered through Brookstone Capital Management, a registered investment advisor, fiduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under management while insurance products pay a commission which may result in a conflict of interest regarding compensation. The Maggie Award was received in April 2024 presented by Maine and Broad Magazine as voted on by their readers. Receipts such as based upon votes cast by the readers and residents covering the period over which the ratings are based. No compensation was paid or earned as a result of such recognition. Third party ratings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client's evaluation.
Whisper: medium.en / 2024-04-27 10:07:05 / 2024-04-27 10:12:05 / 5

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