Did you know some Medicare beneficiaries have to pay a monthly premium for Medicare Part B and Part D if their income exceeds a certain amount?
In this article, you’ll discover how 2023 IRMAA brackets work and how to potentially avoid paying Part B and Part D premiums.
What Is IRMAA?
Short for Income-Related Monthly Adjustment Amount, IRMAA is an additional fee that higher income Medicare beneficiaries have to pay a Medicare Part B premium and pay for Part D coverage for medical benefits and prescription drug plans.
For 2023, Medicare Part B premiums and prescription drug plans are based on your Modified Adjusted Gross Income. The calculation for your total monthly premium is derived from your taxes from two years ago.
Modified adjusted gross income (MAGI for short) is usually similar or identical to your adjusted gross income, but it could be more if you have income from any of the following:
- Untaxed foreign income
- Untaxed income from Puerto Rico, American Samoa, Guam, and Northern Mariana Islands
- Tax-exempt interest
- Non-taxable Social Security benefits
Because MAGI is not a line item on your tax return, you’ll have to calculate it separately if you received funds from any of the above four sources.
IRMAA Brackets for 2023
Determining your IRMAA bracket for 2023 Part B premiums requires you to evaluate your 2021 tax year filing.
For single filers, the threshold is $97,000, and it is $194,000 for joint tax returns. The 2023 IRMAA brackets max out at $500,000 for individuals and $750,000 for the married filing status.
The additional monthly premiums (as IRMAA surcharges) range from $230.80 per month to $560.50 per month for Medicare Part B premiums and between $12.20 and $76.40 in additional monthly premiums for Medicare Part D prescription drug coverage.
CMS.gov provides a complete reference to IRMAA surcharges here.
Tips to Avoid the IRMAA Surcharge
To avoid paying higher Medicare premiums as a result of your income-related monthly adjustment amount (IRMAA) calculations, you can make some adjustments to how you manage
1. Increase Charitable Giving
Donating to your favorite charity allows you to support a cause close to your heart while reducing your IRMAA-based income.
Keep in mind that not all charitable contributions will affect your tax return for IRMAA purposes. For example, even though donating cash can benefit you in other tax areas, it doesn’t change your modified adjusted gross income.
These charitable contributions, on the other hand, will affect your MAGI:
- Appreciated assets like stocks, ETFs, and mutual funds
- Funds from Traditional IRAs (if you are at least 70.5 years of age)
- Funds from a donor-advised fund (DAF)
2. Make Tax-deductible Contributions to Your Retirement Account
Various IRAs and 401(k) plans qualify to reduce your MAGI, which could allow you to remain in a lower IRMAA bracket. These include:
- Traditional IRA
- Traditional 401(k)
- Solo 401(k)
- 403(b) plans
- 457 plans
- SIMPLE IRA
- SEP IRA
3. Maximize Tax-free Income
Not all income is taxable, so you can keep your modified adjusted gross income in check by withdrawing from a Roth IRA, getting a reverse mortgage, or getting cash from a permanent life insurance policy. These latter two tactics are not for everyone, so check with a financial advisor before making these moves.
4. Avoid Unnecessary Capital Gains
There are other ways to grow wealth without increasing your tax burden. To minimize your tax burden, avoid high turnover funds, dividend stocks, mutual funds. ETFs and bonds can be better options.
Another way to avoid the capital gains tax is through tax gain harvesting, a strategy that allows you to reduce your tax gains liability while still making a profit. The tax bracket for 0% eligibility depends on whether you file individual tax returns or you file joint tax returns.
5. Be Mindful of your Withdrawal Strategies
As you manage your cashflow in retirement, avoid creating a situation that puts your taxable income into the stratosphere. For example, resist the temptation to withdraw money in big chunks.
Instead, by adhering to the 4% rule, Medicare recipients have a better chance of staying within the 2023 IRMAA brackets.
6. Contribute to a Medicare Savings Account
An MSA functions like an HSA (health savings account), a type of Medicare Advantage Plan with high deductibles and a special type of savings account. Contributions do not count toward your taxable income, making your IRMAA calculation more favorable.
7. Always Consider Tax Implications
Before making significant financial maneuvers, Medicare beneficiaries should consider how income thresholds will be affected and whether they will be placed in IRMAA brackets that result in paying more than the standard monthly premium for Medicare.
For example, selling a piece of real estate could put your income over the top for a given year.
8. Experience a Life-Changing Event
The Social Security Administration qualifies some life-changing events as grounds for Medicare Part B total premiums to be reconsidered under IRMAA. These situations include:
- Marriage, divorce, or annulment
- Spousal death
- Ceasing work, reducing work, or retiring
- Loss of income-producing property when the loss of the property is beyond the person’s control
- Loss or reduction of pension income
If you experience one or more of these events, you can file an appeal to have the amount you pay for a Medicare Part B premium or Medicare Part D premium reconsidered, reducing your Medicare costs. Exploring Medigap plans is another option if you are concerned about rising healthcare costs in your golden years.
Filing an IRMAA Appeal
Medicare enrollees that are considered higher-income beneficiaries can file an income-related monthly adjustment appeal to have their Medicare monthly premium rates reconsidered.
The life-changing events listed above are grounds for a Medicare IRMAA appeal. You can also appeal if you’ve amended your tax return. This can apply whether your filing status is married or single.
To file an appeal, contact Social Security directly or fill out a form called an SSA-44. You can also call the Social Security Administration at 800-772-1213.
The IRMAA surcharge for Part B premiums and prescription drug plans is expected to rise. To keep Medicare costs for 2023 in check and protect your nest egg, contact a Medicare Advantage advisor today.