
Turning 65 brings more than just Medicare eligibility—it also introduces new considerations that can affect a client’s healthcare costs for years. While some individuals may delay enrollment due to creditable employer coverage, those approaching Medicare enrollment, especially within the next two years, should know how their income history may impact future premiums. Tax and financial advisors are key in helping clients understand the income-related monthly adjustment amount (IRMAA) and how proactive planning can help manage its cost.
How MAGI Affects Medicare Premiums
Under Medicare’s IRMAA rules, an individual’s current year Medicare premiums are based on their modified adjusted gross income (MAGI) from two years prior to the premium payment year. IRMAA is a surcharge added to Medicare Part B (medical insurance) and Part D (prescription drug plan) premiums when a beneficiary’s MAGI exceeds certain thresholds.
Calculating IRMAA and Understanding the Surcharge
For example, Medicare premiums for 2025 will be based on 2023 MAGI. MAGI for Medicare IRMAA determination is calculated as adjusted gross income (AGI) plus tax-exempt interest. If MAGI exceeds $212,000 for married couples filing jointly or exceeds $106,000 for individual taxpayers, Medicare Part B and D premiums will include a surcharge ranging from $74.00 to $443.90 per month on top of the standard Part B premium of $185. Medicare repeats this review process each year.
Requesting a Premium Recalculation: What Qualifies?
Beneficiaries are allowed to request a new initial determination based on a more recent tax year by filing Form SSA-44. To be eligible for a new determination, certain qualifying life-changing events must occur. These would include retirement, reduced work hours, the death of a spouse, marriage, divorce, or the loss of income-producing property due to circumstances beyond the enrollee’s control. Unfortunately, other events that increase income, such as Roth conversions, the sale of a business, or a taxable inheritance (i.e., a 10-year payout distribution from an inherited IRA), do not qualify and may result in higher taxes and greater Medicare premiums until MAGI is reduced to lower levels.
Minimizing IRMAA Through Proactive Tax Planning
To mitigate the IRMAA impact, it may be appropriate to pair a non-qualifying event with a qualifying event in the same year. The following example demonstrates this tax planning strategy.
EXAMPLE
Michael retires in November of 2025 and plans to enroll in Medicare effective January 1, 2026. Using the two-year lookback provision, the Social Security Administration will initially look at Michael’s 2024 MAGI when determining his 2026 premiums. If Michael and his trusted advisor are aware of this plan, Michael may have planned to convert extra funds into a Roth IRA in 2024 and 2025. Then he can take advantage of Form SSA-44 to request a premium adjustment based on his expected income in 2026, using retirement as his life-changing event to support the request to use 2026’s estimated MAGI for 2026 and 2027 premium years.
As you can see by this tax planning strategy, Michael can lower his Medicare premiums for both years and create the opportunity for Roth conversions in those years (2024 and 2025). Michael has paired the Roth IRA conversion (a non-qualifying event) with his retirement event (a qualifying event). Michael effectively gets a “free pass” on some or all of IRMAA’s impact depending upon his anticipated 2026 MAGI. This allows him to shift money into a tax-free vehicle while controlling the amount of his Medicare premiums.
Final Thoughts
As always, such tax planning strategies should be reviewed with a trusted advisor to ensure they fit within the broader financial goals and objectives for the client.
Topic
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Details
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Medicare Enrollment Age
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65
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Delay Enrollment
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Covered by employer health plan
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Creditable Coverage
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Plans covering 20 or more employees
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IRMAA Basis
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MAGI from two years prior
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MAGI Calculation
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AGI plus tax-exempt interest
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MAGI Thresholds
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$212,000 for married couples, $106,000 for individuals
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IRMAA Surcharge
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$74.00 to $443.90 per month
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Standard Part B Premium
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$185 per month
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Qualifying Life-Changing Events
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Retirement, reduced work hours, death of a spouse, marriage, divorce, loss of income-producing property
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Non-Qualifying Events
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Roth conversions, sale of second home, sale of business, taxable inheritance
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Form SSA-44
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Request new initial determination based on more recent tax year
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Example: Michael
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Retire in Nov 2025, enroll in Medicare in Jan 2026
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Michael’s Tax Planning Strategy
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Convert extra funds into Roth IRA in 2024 and 2025, request premium adjustment using Form SSA-44
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Trusted Advisor Review
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Review strategies with a trusted advisor
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This topic will also be covered at the upcoming June 24 webinar, Social Security and Medicare Update.
By Michael Miranda, CPA
MIRANDA CPA & Consulting LLC
Sioux Falls, South Dakota
