What Types of Income is IRMAA Based on? How to Avoid the Medicare Surcharge



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IRMAA, or the income related monthly adjustment amount, is a surcharge to your monthly Medicare premium that is based on your income.
Understanding the type of income that counts towards the IRMAA calculation is important, because avoiding IRMAA can save you hundreds of dollars per month on each spouse’s monthly Medicare bill.
IRMAA is based off of what is called your Modified Adjusted Gross Income, or MAGI.
This can be confusing to calculate or find because it is not a specific line item on your tax return.
MAGI is the sum of all your income that is subject to tax – the most common sources for this for retirees is IRA withdrawals, capital gains, dividends, interest from CDs, and the taxable portion of your social security. This total is also known as your Adjusted Gross Income, or AGI and is a line item on your annual tax return.
Then add in the total of your non-taxable interest – This is usually any municipal bond income. The total of your AGI, plus non-taxable interest, is your MAGI.
Just as important for retirees who are trying to avoid the IRMAA surcharge is understanding what types of income does not contribute to IRMAA.
The big one is withdrawals from Roth IRAs. Regardless of how much you take out from Roth IRAs, it is not taxable.
If you are like most Americans and a significant portion of your savings is in pre-tax retirement accounts like 401(k)s and traditional IRAs. Developing a plan to convert some of those assets to Roth accounts early in retirement can have huge benefits and help you avoid IRMAA in the future.
We help our clients develop Roth conversion plans, and tax efficient withdrawal plans in retirement to help insure their income in retirement does not unnecessarily trigger IRMAA, or any other added tax burdens in retirement.
While this applies to just about anyone. We find that those with $700,000 or more in pre-tax retirement accounts in particular can save a significant amount on taxes in their retirement with a proper plan.
If you’d like to see how we can help you create a plan to save on taxes in your retirement, please reach out.
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