Weekend Reading: 6 Ways to Help Clients Avoid Medicare's IRMAA Surcharges in Retirement

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
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Weekend Reading

Retirees are filing for bankruptcy more today than ever before, and surging medical care costs can be partially to blame. Read the article from Think Advisor below.


Know your numbers: An average 65-year-old couple retiring today will need about $300,000 to cover health care expenses in retirement, but planning ahead can help ease what doesn’t need to be a lifelong financial strain. Part of that planning includes understanding Medicare’s income-related monthly adjustment amount (IRMAA), which was developed as a means-testing program to increase the premium that some beneficiaries pay based on their income. The program’s income brackets are based on a retiree’s prior two years’ modified adjusted gross income (MAGI) and can cause wealthier individuals to pay higher surcharges.

The good news: Legislation passed in 2020 now requires IRMAA brackets to be indexed to the Consumer Price Index for Urban Consumers, meaning retirees must have a higher MAGI than in previous years to be subject to surcharges. While this does help prevent health care costs from taking a bite out of your lifelong savings, there are additional ways to solidify your financial security amongst IRMAA issues, six of which are included here:

📌Don’t assume non-qualified accounts should be used first in a liquidation order strategy: Deferring taxes from qualified accounts and taking income from non-qualified accounts first can result in increased IRMAA surcharges

📌Consider Roth conversions: This can help avoid bumping you into a higher IRMAA bracket

📌Use RMDS for charitable contributions: If at risk for a higher surcharge due to RMDs, a qualified charitable distribution in the form of an RMD would be considered taxable income

📌Don’t over-save in pretax accounts: Tax laws are continually changing, so avoid placing all retirement contributions into your 401(k) or IRA

📌Reverse mortgages: Personal residence equity can be accessed “tax-free” with a variety of reverse mortgages

📌Life insurance: With certain policies, cash values can be distributed as tax-free income and also help IRMAA surcharges

Here’s the reality: Healthcare and taxes are the two most overlooked areas I see ignored in the planning process, yet they can be one of the few places to find guaranteed returns in retirement.