Medicare Part B is medical insurance for seniors 65 years and older. It covers outpatient care such as doctors’ visits, mental health services, ambulance services, and durable medical equipment. While most Medicare beneficiaries don’t have to pay anything for their Part A (hospital insurance) premium, almost everyone pays a monthly premium for Part B. The vast majority of kupuna pay the standard monthly premium for Part B, but approximately 7% of Medicare beneficiaries are required to pay higher premiums because they earn a high income; that is, their adjusted gross income plus tax-exempt interest income (modified adjusted gross income) is over the threshold laid out by the Centers for Medicare & Medicaid Services. The Medicare premium surcharge is called the “income-related monthly adjustment amount” or IRMAA.
For 2022, single seniors with a modified adjusted gross income of more than $91,000 and married couples who file joint tax returns with a modified adjusted gross income of more than $182,000 will be expected to pay the IRMAA.
For 2022, the standard Part B premium is $170.10 per month. Seniors who are assessed IRMAA will pay an additional $68 to $408.20, depending on their level of income. That means, seniors who are required to pay the income-related monthly adjustment amount will have premiums ranging from $238.10 to $578.30.
Tips to Avoid the Medicare Part B Premium Surcharge
If you go over a modified adjusted gross income threshold by even $1, you will be subject to IRMAAs. That’s why it’s really important to understand the different income thresholds and take proactive steps to help avoid paying the Medicare Part B premium surcharge.
1. Review income streams you can control
Many seniors are on a fixed income with Social Security benefits and/or a pension from their former employer and these income streams are not in your control to change. If you have other income streams, such as stocks or retirement annuities, that’s where you have some control. Speak to your financial advisor about ways you can maximize your retirement income while avoiding premium surcharges, if possible.
2. Consider converting to Roth IRA accounts
If you are within 10 years of retirement and have investments with future income distributions that will be taxed as regular income, such as a traditional IRA or 401(k), you may want to consider converting the accounts into Roth IRAs now. In order to do this, you are required to pay all taxes upon transfer but any withdrawals you make in the future are non-taxable (assuming you are at least 59 ½ and have had the account open for at least five years).
3. Watch out for capital gains
If you have “capital assets” that are subject to capital gains tax when you sell them (stocks, bonds, jewelry, coin collections, and real estate), work with your financial advisor to evaluate how to manage the sale of your capital assets in the most beneficial way possible.
4. Donate to a charitable cause
If you’re at least age 70 ½, you can reduce your taxable income by donating money to a qualified charitable contribution, or QCD. The way it works is the contribution is transferred directly from your IRA to a qualified charity and is excluded from your income. This is a way around paying taxes on withdrawals from your traditional IRA and works to keep your income down for the purposes of falling under a lower income bracket.
Kupuna should know that IRMAA is calculated based on the tax return from two years prior. Read our blog post about how to appeal Medicare premium surcharges if your income drops after retiring.
Our independent insurance agents are dedicated to assisting people on Medicare and those who are ready to transition from employer coverage to personal retirement coverage. We help kupuna understand their benefits options and apply for additional coverage, as needed. Because we represent all the major Medicare Advantage and supplement plans in Hawaii, we are able to offer unbiased advice; all at no cost to our clients.
At PBC, our clients are our number one priority and we look forward to getting to know you and your needs. Call us today at (808) 738-4500 to see how we may be of assistance.