Medicare income-related monthly adjustment amounts (IRMAAs), devised as a means test on recipients for Medicare services, are set to change next year. 

“Others call this a means test, but I don’t,” said Diane Omdahl, president and founder of the consultancy Sixty-Five Incorporated in Mequon, Wis., and author of the forthcoming Medicare for You: A Smart Person’s Guide. “This is not a determination of whether an individual is eligible for Medicare. It’s more like a progressive tax, but I don’t call it that either. IRMAA is a simply a way to make higher-income beneficiaries pay a greater portion of Medicare costs.”

How are IRMAAs calculated? And even though they dipped slightly from 2022, what can a client do to mitigate their effects? 

“The higher the income, the higher the Medicare costs,” added Onofrio Cirianni, consultant in the EisnerAmper Wealth Management and Corporate Benefits team. “A snapshot of your income is taken for the last two years, which will determine what your Medicare part B premium will be. IRMAA is your AGI plus municipal bond interest less any untaxed Social Security … with some other income items that may apply.

“The overwhelming majority of our clients are not aware about IRMAA,” Cirianni said, adding that among his firm’s regular annual meetings with clients is one on Medicare planning, addressing IRMAA.

“Some of those getting into Medicare at age 65 or upon retirement have heard about it, but many more haven’t,” Omdahl said. “Those over 65 who fall into it because of required minimum distributions and so on are usually surprised. In most cases, there is nothing they can do because they haven’t experienced one of the eight recognized life-changing events.”

Life events where IRMAA calculation can be appealed and changed, Cirianni said, include the death of a spouse, marriage, divorce or annulment, involuntary loss of income-producing property due to a disaster, disease, fraud or loss of a pension, among others.

“If income drops because of a life-changing event, take timely action,” Omdahl added.

“Nearly no one will win an appeal,” said Lawrence Pon, CPA/PFS, CFP in Redwood City, Calif. “You just let [clients] know that this will occur for one year and then [their IRMAA] will decrease in the subsequent year.”

“When a client has a transaction such as a sale of home or sale of stock, this will bump up their AGI, which may increase their Medicare premiums,” Pon said.

“All tax planning comes with trade-offs and, in most cases, clients just suck it up and pay the extra,” said Bruce Primeau, a CPA and president of Summit Wealth Advocates in Prior Lake, Minn. “Sure, you can draw more funds from taxable accounts and Roth IRAs to save some dollars on Medicare, but you may be giving up the opportunity to convert dollars from a traditional IRA to a Roth IRA as a result.”

One of the causes of IRMAA is the required minimum distribution (RMD) from IRA accounts. “A way to mitigate this is to donate your RMD,” Pon said. “You can roll over up to $100,000 from your IRA to a charity via a qualified charitable distribution.” This distribution is not included in AGI and fulfills an RMD; you do have to be older than 70½ to use it.

“[Clients] can also draw extra dollars from a traditional IRA in year one to draw less in year two. That way, the impact of IRMAA in year two is less,” Primeau added.

“It may not be possible to avoid IRMAA but, if one must pay, try not to dribble over the lower limit,” Omdahl said. “I had a client whose MAGI was $132 above the threshold.”

“IRMAA should be considered in tax planning for Roth conversions,” Pon also said. “You do not want a large Roth conversion two years before claiming Medicare, because that can increase your Medicare premiums.”  

The best strategy is to prepare years in advance of eligibility of Medicare, Cirianni said, using assets and income sources exempt from, AGI such as Roth distributions, non-taxable alimony, non-taxable disability payments, excluded gain on the sale of personal residence or gifts and inheritances, among others.