If you’re a high-income retiree, you might have come across the term IRMAA while dealing with your Medicare premiums. IRMAA, or Income-Related Monthly Adjustment Amount, is an additional surcharge that higher-income beneficiaries pay for their Medicare Part B and Part D premiums. Let’s break down what IRMAA is, how it works, and what you need to know for 2025.
What is IRMAA?
IRMAA is a surcharge added to your standard Medicare Part B and Part D premiums based on your income. This adjustment is determined by your Modified Adjusted Gross Income (MAGI) from two years prior. For 2025, the IRMAA is based on your 2023 income. The purpose of IRMAA is to ensure that higher-income individuals contribute more to the Medicare program, reflecting their ability to pay higher premiums.
IRMAA Thresholds for 2025
Here are the updated IRMAA thresholds for 2025:
- Individuals: If your MAGI is over $106,000
- Couples filing jointly: If your MAGI is over $212,000
The surcharges increase in tiers based on your income level. The higher your income, the higher the IRMAA you’ll pay. Here is a breakdown of the 2025 IRMAA brackets for individuals:
- $106,001 to $160,000: An additional $70 monthly surcharge.
- $160,001 to $213,000: An additional $140 monthly surcharge.
- $213,001 to $267,000: An additional $210 monthly surcharge.
- $267,001 and above: An additional $280 monthly surcharge.
How Does IRMAA Impact Your Premiums?
If your income exceeds the thresholds, you’ll pay higher premiums for Medicare Part B and Part D. The Social Security Administration (SSA) will notify you if you’re subject to IRMAA, and the surcharge will be automatically added to your monthly premium. For example, if you fall into the highest bracket, you could be paying an additional $280 per month on top of your standard premiums. This can add up to a significant amount over the course of a year.
How is IRMAA Determined?
IRMAA is determined based on your Modified Adjusted Gross Income (MAGI) from two years prior. MAGI includes your adjusted gross income (AGI) plus certain deductions, such as tax-exempt interest income. The SSA uses your IRS tax return from two years ago to determine if you owe IRMAA. For example, for the year 2025, your IRMAA is based on your 2023 income tax return.
Strategies for Managing IRMAA
Understanding IRMAA and planning ahead can help manage these additional costs. Here are a few strategies:
- Income Management: Monitor your income to stay below IRMAA thresholds when possible. This could involve timing your income streams, such as taking distributions from retirement accounts in a way that spreads out your taxable income over several years.
- Roth Conversions: Consider Roth conversions to manage taxable income. By converting traditional IRA assets to a Roth IRA, you can potentially reduce your taxable income in future years, thereby avoiding IRMAA surcharges.
- Charitable Contributions: Use charitable donations to reduce your taxable income. Donating appreciated assets or making qualified charitable distributions directly from your IRA can help lower your MAGI.
- Tax-Efficient Withdrawals: Plan your withdrawals from taxable accounts to minimize the impact on your MAGI. Be strategic about when you realize capital gains and take distributions from taxable accounts.
Common Misconceptions about IRMAA
There are some common misconceptions about IRMAA that can lead to confusion. One misconception is that IRMAA is a permanent surcharge. In reality, IRMAA is recalculated each year based on your income from two years prior. This means that if your income decreases, your IRMAA surcharge can be reduced or eliminated in subsequent years.
Another misconception is that IRMAA applies to all types of Medicare coverage. However, IRMAA specifically impacts Medicare Part B and Part D premiums. It does not affect Medicare Advantage (Part C) premiums or Medigap (Medicare Supplement) plans directly.
Impact on Retirement Planning
IRMAA can have a significant impact on your retirement planning. Higher Medicare premiums can eat into your retirement income, making it important to plan for these costs. Consider working with a financial advisor to develop a comprehensive retirement plan that takes IRMAA into account.
Conclusion
IRMAA can significantly impact your Medicare premiums, so it’s essential to understand how it works and plan accordingly. By managing your income and exploring strategies to reduce your taxable income, you can minimize the impact of IRMAA on your retirement finances. Staying informed about the IRMAA thresholds and how they apply to your situation is key to effective retirement planning.
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About the Author
Matt Feret is the author of the Prepare for Social Security – The Insider’s Guide and the Prepare for Medicare – The Insider’s Guide book series and launched PrepareforSocialSecurity.com and PrepareforMedicare.com to help people get objective answers to questions about Social Security and Medicare. Matt is also the host of The Matt Feret Show. He has held leadership roles at numerous Fortune 500 Medicare health insurers in sales, marketing, operations, product development, and strategy for over two decades.
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