What You Need to Know About IRMAA

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Today, we're gonna be talking about IRMAA and Medicare. Hello, and welcome to Money Talks. My name is Ken Wink from Summit Financial Consulting. If you like more information after what you hear on the show today, feel free to go to our website, summitfc.net, or give us a call at 586-226-2100. When you go to our website, be sure to check out the podcast page. You can subscribe to us and see our past shows. So when somebody turns 65 years old, most people end up signing up for Medicare And then you have to pay for it. But if you're still working or if you have high income from investments or pensions and Social Security or a few other situations that we'll cover today, you could end up dealing with a dreaded phrase, which is called the income related monthly adjustment amount or IRMAA. So if you're on Medicare and you're dealing with IRMAA, you're probably in a bad mood. During today's show, we're going to break down what it is, who it affects, and how you can address it with your financial strategy. Before we jump into that, let me introduce my co-host, Tony Shore. Tony, are you like me and just hoping that you're making big, big bucks during retirement so we have to deal with IRMAA?

Well, yeah. I mean, it's funny because on one hand, I'm like, I always kind of shrug when people complain about IRMAA because that means they're making a pretty good income in retirement compared to most people. However, things can happen in retirement that can bump even the average person into IRMAA, and that can be a problem, right? I mean, if you... have to convert. If you convert a large sum or pull out a sum of money, let's say you want to buy a boat or a camper or you inherit money or you sell some property, that income could bump you into a category where you'd have to pay IRMAA. And I know you're going to explain to our listeners out there exactly what that is. But I remember on IRMAA, when you said IRMAA, I mean, you know, everybody has that mean aunt. Uh, that, uh, that one aunt who's not nice. I mean, I love my aunts and uncles, but there was the one on aunt Irma, uh, and, uh, aunt Irma and uncle Sam aren't always your friends. Um, they're the bad ones on IRMAA is the one that gives you the stale, uh, Um, like, uh, fruit loaf for, uh, for Christmas, whatever you call that. Uh, so, uh, yeah, that's, uh, that's, that's on IRMAA. You don't want anything to do with on IRMAA. See, this is, uh, rocking my boat because around us we've got a custard shop named IRMAA's that's been around for almost 100 years, and it's like super famous and super delicious. Oh, okay, so that's a, IRMAA is a good, good one there. Yeah, that's, that's interesting. I don't have an evil aunt. Yeah, not evil, but Aunt Irma. I always call it Aunt Irma because, uh, you know, I just picture this. IRMAA sounds like somebody's aunt to me. Yeah, and, and not a nice one either. Same with Uncle Sam, uh, especially when they just want to take more of your money, right? Yeah, yeah, that's true. Gosh, I do, uh, I've been

And I'm thinking, man, this poor kid in 40 years, he's going to really, really get it.

Yeah, yeah, exactly. Well, so we're talking about this today. I think it's important. But first, how have you been? Now, you've been busy, right?

Yes. Yeah, we've been extremely busy. We are shooting new TV commercials tomorrow. We are. Our team here has gotten so large that we can't fit in our conference room anymore to take a picture. So we're pretty, pretty cool, exciting threshold that we reached there. So we're going to a photography studio tomorrow that can hold really. And we got our own. whole team going out there.

You've got a great team. I mean, not a lot of lookers. It'll be interesting to see the picture, but I'm teasing you. That's great. A team photo. I wish I could be there for it. And just a little radio show co-host. Yeah. You know, I think you need some eye candy for the picture. So I probably should have flown out there. And now I'm back in Minnesota right now.

So I dropped the ball, not getting it right.

Right. Well, the Summit team is great and talk about nice people and a lot of experts and specialists in their fields to better help your clients and our listeners out there educate them. And that's what we're working on today. So speaking of that, IRMAA, what exactly is it? I mean, you said income related monthly adjustment amounts. I just these these acronyms and the names they come up with. Yeah, it's just like, how can we complicate this or make this weird? I know, call it IRMAA. Yep. Thank you. Thank you, IRS and tax code. I love that.

So what is IRMAA again? So if your income crosses a certain threshold, then you basically pay more for Medicare, paying more for health insurance. So it's not a penalty anymore. per se, but it is like a surcharge. So here's one thing that throws people for a loop. It's based upon your tax return from two years ago. So 2025 here, they would be looking back at 2023. So it's not necessarily what you're making now. So a lot of people are sort of blindsided by that. So you sort of mentioned it in passing, but if your income spikes for just one year, you know, you listed a lot of great things there. Sold a business, cashed out some stock, took a big distribution maybe to pay off your mortgage. Roth conversion. Yeah, Roth conversion is a great one. Yeah. So those all apply and can make your Medicare or Medicare Advantage plan.

Sorry.

I'll get it. It can make your Medicare or Medicare Advantage plan more expensive. So those are all the situations that we see all the time. So just going through the show, we're going to talk about, you know, when does this kick in? Can it be waived? How do you plan ahead to get your retirement cash flow at a point where this doesn't disrupt things? So income planning during retirement, Tony, it's pretty important.

Oh, it's huge. And this is a big part of it. And people don't understand this, but especially those who are going to have incomes over certain thresholds. And I know you're going to tell us what those are, et cetera. But first, so what we're talking about increasing people say, well, I get Medicare and that I'm covered. You do pay. But everybody has to pay the what is it? The base for Part B, you pay one hundred and eighty five dollars a month. Right. It's about that right now. That's right. And that usually increases every year a little bit. But in 2025, it's one hundred and eighty five dollars a month. But it can go as high as IRMAA if you make too much money or have too much income, you know, adjust gross income for the year. you can go as high as what, $600, $700, $800? I mean, it can go up pretty high based on how much taxable income you had that year, right?

Yeah, yeah. So if you're married and filing jointly, if your income was over $212,000, or if you were filing solo over $106,000, then that's when we got to start dealing with IRMAA. So, so the surcharge, it ramps into four different tiers and the highest tier for part B. So part B is outpatient care. So part B, it can go up to $628 and 90 cents per month. Wow. That's a lot compared to 185.

That's a huge increase per month. Yeah.

Yeah, well, and then on top of that, there's part D. So part D is for prescriptions. So part D can go up to $85.80 per month. So yeah, when you put those two together, you're talking about over $700 a month. And that's not per couple. You know, that's per person. So you could be looking at fourteen hundred dollars for a couple. Ouch. You have one.

They make over two hundred and some in one year. Yeah. And then they go back and they kick in. They look at that year and then IRMAA kicks in and then you you might be stuck there. You got to watch that. So. So, even a one-time income spike can do it, like you said. So, that's interesting. And Part D, I didn't know that Part D, I knew that Part B premiums were what was affected, but also Part D drug coverage is affected then, too.

That's right. Wow. Yeah. So that's one of the big things that we do for people every day. Like if I could boil it down to the top two reasons people come to meet with us, number one is retirement income planning and making sure their money is going to go the distance. Sure. But number two is IRA to Roth IRA conversion calculations, because most people can manage their investments on their own, but they can't put together 60 years worth of tax returns on their own or 40 years worth of tax returns themselves. And that's what we can do with our software is figure out exactly how much someone should convert from IRA to Roth IRA every single year to try and basically pay the taxes. Now we've talked about it on a lot of shows lately about how high our national debt is getting, and that's a big concern. So trying to get those taxes out of the way now and convert some IRA to Roth IRA sometimes makes sense. But this is- Well, taxes are low.

To do Roth conversions now, well, taxes are low. And not have that burden later and have more taxable income later, especially when you're relying on Medicare and the fixed income. And that makes sense. And I get that. Those are two big concerns. And that's why you have Medicare specialists. You work alongside tax professionals. But the thing is, you brought up a good point there. Really, IRMAA and everything, a lot of what we talk about on the show and finances, especially if you're looking ahead to making sure You know, how what's my income going to be in retirement? Should I have Roth? Where should my money be at? It comes down to taxes. And that's that's really key. But a lot of people don't understand that their CPA. isn't going to necessarily give them the advice they need looking down the road. Like, how will this affect you in your fifth year of retirement? You know what I mean? Your CPA is probably just preparing your taxes for last year. Right. Maybe helping you look ahead to the, you know, you know, to minimize your tax burden this year, you should do this. And that's good advice to get. You need to talk to a CPA and have one on your team. That's important. And I know you guys do. And for your clients, you work alongside CPAs, but you need somebody like yourself and a trusted fiduciary, a financial advisor who's going to say, hey, here's your retirement income plan. Here's your financial plan. Here's how these taxes are going to be affected in the future, because you've got a 401(k) and a traditional IRA and all that money is taxable. It's growing tax free, but it's all taxed when you take it out. So what's that going to do to you? Is it going to cause your Medicare premiums to go from one eighty five to six hundred dollars a month? You know, we have to look at everything, including that.

Right. Yeah, we spent almost the entire year, 2024, looking at different tax planning slash financial planning combo softwares. So we found what we think is the best fit for our clients. It's called RightCapital. And as far as we're concerned, it is the most appropriate there is for IRA to Roth IRA calculations while tying in the tax. It'll literally create 40 years worth of tax returns just to double check the math. So that so we've got that. And then we've got our tax team. Then we've got some health services here that will meet with people and help them find the best health insurance slash Medicare supplemental program or Medicare Advantage. Like we sort of. We got a lot of different people on our team here that can help put together a comprehensive plan rather than a lot of times people have the Medicare guy over here and the tax guy over here and the financial advisor over here and the wills and trust estate planning attorney over here. And none of those people communicate. So that's one of our biggest competitive advantages is we're in the same office. We can just walk down the hall and chit chat about this stuff, you know, be proactive rather than reactive. You know, to your point, most people meet with their CPA after tax season is over. you you know, not, not in the current year and trying to make, not being proactive.

Yeah. Right. Yeah. Yeah. And proactive tax planning and future tax planning is, is huge. It's a part of financial planning. I mean, no matter what you're doing, if you're investing in stocks, if you have money in an IRA or a 401(k), or you're doing retirement income planning and getting a plan from a professional like yourself, Taxes play a huge role in all of that. So that's why this is all important. What else do we need to know about IRMAA? What else do you want to talk about here today?

Just sort of the history of it. So Part B, the Part B IRMAA surcharge was introduced in the Medicare Modernization Act of 2003. That is also what gave us Part D prescription drug coverage. So they all went into effect in 2007. And then The Affordable Care Act was started in 2011 that added the high income surcharge to Part D. So that's where prescription drugs started getting tagged with a little bit. But the surcharges are a little bit tricky, Tony. So for Part B, the IRMAA amount is tacked right on top of the premium. So like you said, for 2025, that's 185 bucks. So that's what the average Joe is paying. And that's paid directly to the government. But for Part D, the prescription drug part, things are a little bit different. So the base premium depends completely on which plan you choose. So the average premium for Part D is around $45, $46 a month. And that actually gets paid to the insurance company. But then if IRMAA applies, then there's an extra surcharge. And then that goes to Uncle Sam rather than to the insurer. So you're actually paying two separate bills for your drug coverage, one to the plan and then one to the government. So, yeah. So, you know, they all hit your wallet. It's just in different ways. But you got to keep your your eyes on the mailbox, I guess, and make sure all those direct deposits or I guess direct withdrawals are going through appropriately.

Sure. I mean, IRMAA and the ramifications here can really are worth a check in with a financial professional like yourself because it can get complicated, as you just noted. I have a question for you, though. Are IRMAA's income caps adjusted for inflation? Sure.

Right. So like it's a problem now. Is it going to be a problem in the future? That's a great question. So originally the thresholds were actually moving for inflation. So from 2011 to 2019, they were moving every single year, but then they were frozen. So basically what that means is as inflation goes up, as people get more and more money from their social security, from the COLA, the cost of living adjustment, throw another acronym in there. Yeah. but the Bipartisan Budget Act of 2018 added an extra bracket. So there's, they had actually a fifth bracket for high earners. And then it also froze all of the brackets until 2028. So we still got three more years here. So, um, You know, some of the brackets will actually adjust because of CPI, but that top tier is just staying locked. So, again, smart income planning in retirement. It's super important because we just don't want to accidentally trip into this accidentally. If we're working on IRA to Roth IRA conversions or selling a business or taking a one time distribution to pay off the house, there's just a lot of moving parts here.

Yeah, it's not just about what you owe the government in April each year for the past year. It's not just about that. There are tax implications all along the way, especially for retirees. And you want to minimize that tax burden, including these Medicare surcharges you've been talking about. So what's next, Ken?

Um, next thing is like, so what happens if you get hit by IRMAA and, and especially if it was sort of a one-time event, whether it was, so we've had a lot of auto workers and engineers lately that have been given an opportunity to retire, uh, you know, on time or maybe a little bit early and then they get a big buyout. So they're excited about that. You know, maybe they retire in October and then they get a whole year's worth of pay in October to basically make up for the next year. But what they don't realize is two years from now, now that now IRMAA's gone. Come come knocking on the door. Yeah. So if you've had a one time income spike, there is actually good news and you can actually do something about it. So you can request a new determination by filing form SSA dash 44 with Social Security. So that that's basically the form that says, hey, this was a one time blip. You know, my income's changed. It's not going to be this high every single year. So let's recalculate this thing. So if you've had a life changing event like retirement, you would actually need to get a letter from your employer saying the date that you retired that that would be one example.

Yeah.

And then, you know, some proof that your income is lower. So, you know, even if your tax return doesn't necessarily reflect the lower income yet, it usually will eventually. So usually by the third year. So this isn't just a short term fix. It can it can lead to some long term savings.

Yeah. So that's what happens if your income goes down. Right. But you may be eligible for a waiver in certain circumstances. Is that true?

That's that's basically it. Yeah. If you have a one time spike, then you can complete that SSA 44 form and get a waiver. So, yeah. You know, and if you just had high income for one year, you know, let's say it was from selling a business. The good news is it doesn't have to go on forever. You know, as your tax return updates as time goes on, then what category you're in will be adjusted.

So the surcharges aren't permanent.

No, they are absolutely not permanent. It is based upon each, each year as you go on, you know, the real numbers. But if it was just a one-time thing, then you're going to want to try to get a waiver. Yeah. Yeah.

So they're not permanent. That's good. Yeah. So the higher premium, I already know the answer to this question. I mean, because you're paying higher premium, like you're not paying the 185 anymore. Let's say your income goes up. So you're now paying the $600 a month. Does your do you get more coverage for that because you're paying so much more? Do you get anything more for coverage?

It's funny. I was talking to my wife and kids about that this morning, about how like how health insurance works and when you're 65 and you have to pay more. And that was like the first thing my daughter asked is like, well, do you get more from from it then because you're paying more? And we all know the answer is no. It's just just it doesn't work.

It's not fair. You know, my mom is life's not fair. fair son.

Yeah. My daughter was like, that's not fair. And I was like, well, you know, if they don't charge the people that make a lot of money more than the people that make less money would have to pay more. And they were like, it seems like everyone should pay the same price. And I was like, there's a lot of people that think like you, Charlotte, but yeah.

And you're not getting more benefits for the, that's the answer to the question. No, you don't get more benefits. Well, so how do you and your team there help people navigate IRMAA and Medicare in general? How do you do that for your clients and people you talk to in case our listeners need some help?

Yeah, so whether you're doing it on your own or working with my team here, it's really important to get the people that you're getting advice from on the same page and communicating. So I feel it's very, very challenging to pick a Medicare plan or a Medicare Advantage plan, but some people get coverage from their employer, so they don't necessarily have to deal with that. But to have a tax advisor... meeting with your financial advisor, meeting with your health insurance representative, and depending upon the size of your estate, meeting with an estate planning attorney. We just want to make sure that all of these professionals are working together to come up with a comprehensive game plan, especially when it comes to taxes, because that's going to directly affect the IRMAA. So If you're doing it on your own, make sure everybody's talking. Have a conference call. Ask these people. I just want to put our heads together and brainstorm about how I can save money on taxes. And if you work with our team here at Summit Financial, we're going to do that automatically for you and then just deliver our recommendations. There you go.

Well, I think that's really important. And so before we go, I'm sure our listeners out there would like to get a plan in place, especially if they're getting closer to retirement or even if they're in retirement. Get a second look at where you're at. Either maybe you're younger and you want to make sure you're investing in the right areas so you have a good long term overall financial plan. Or you're, you know, you hit 50 and you want to make sure you're or 55 and you want to make sure you have a solid retirement income plan. How long is my money going to last? When can I retire? How can I minimize that tax burden and avoid surcharges? That is what your team does there. You've assembled a great team and we all need a team of experts and specialists on our side. How can our listeners get a hold of you and your team, Ken?

Yeah, we'd love to help our listeners out. You can visit our website at www.summitfc.net, or you can give us a call at 586-226-2100. We'll be able to answer all your questions and address all your concerns about IRMAA, retirement, when to turn on Social Security, how much you should save in your 401(k) or other investments to be able to retire on time. Anything that has to do with retirement, health insurance, estate planning, we've got a team here that can help.

All right. And that phone number again is 586-226-2100. And the website, if you want to go there, is summit.com. dot net. Ken, great show. Listeners, thanks for tuning in and viewers. That does it for today's episode of Money Talks with Summit Financial Consulting and our host, Ken Wink. Thank you for joining us for Money Talks. Don't head into retirement without a strategy that addresses both income and taxes. For more information, please contact Ken Wink at Summit Financial, working with people you trust. Call 586-226-2100 or visit summitfc.net. Join us again soon for another episode of Money Talks.