• Mike Komara

Ways to Reduce Your Medicare Premiums

While tax payments are taken out of your paycheck to cover the cost of Medicare Part A, retirees pay for Medicare Part B and D during retirement. High-income earners typically pay more for this coverage than those with a moderate income. However, high-income retirees can reduce their premium payments by taking specific actions.

Tips to Avoid an IRMAA

The Medicare Income-Related Monthly Adjustment Amount (IRMAA) is an amount high-income earners may pay in addition to their Part B or Part D premium. The Social Security Administration determines whether you must pay an IRMAA based on the adjusted gross income and some tax-exempt income on your federal tax forms of the past two years. The SSA will notify you if your income qualifies for an IRMAA.

Because IRMAA is based on adjusted gross income (AGI), undertaking strategies that lower that income or avoiding strategies that raise AGI are ways to prevent it. For example, selling real estate or taking other actions that raise capital gains can increase AGI and IRMAA surcharges. Also, giving to a charity will potentially lower AGI.

How to Get Medicare Surcharges Reassessed

Another way to avoid IRMAA or have an IRMAA surcharge reassessed is to have a qualifying life-changing event that affected your income. If you experience one of these events, you file a form with Medicare to let them know. You'll also have to submit proof that your AGI has been reduced. Qualifying life-changing events are:

  • marriage

  • divorce

  • the death of a spouse

  • a loss of job or reduction in hours

  • a reduction or loss of your pension

  • a settlement from an employer

  • a loss of income-generating property

Use HSA Funds to Pay Your Medicare Premium

Many employers offer the option to contribute to a health savings account. The IRS allows you to contribute to these HSAs with pretax dollars while working if you have a high-deductible health insurance plan. The money you contribute to an HSA remains yours even after you retire. You can use it to pay your Medicare premiums without incurring taxes on the money, as well.

Avoid Late Enrollment Penalties

You can sign up for Medicare three months before your 65th birthday. You then have seven months to enroll in Medicare and receive financial incentives for enrolling during that time. Generally, if you wait longer than that to enroll in Medicare Parts B and D, you face a late enrollment fee that you'll pay every month for the rest of your life. You can only avoid the late enrollment fee by either signing up on time or by being enrolled in another health insurance plan that offers "creditable coverage."

Maximize Your Tax-Free Income

Tax-free income doesn't count in your AGI calculation. One way to maximize your tax-free income is to receive income from a Roth IRA or 401(k). The money you contribute to a Roth retirement account is taxed when you first earn it, so it is not taxed when you withdraw it. However, you should consult a tax and financial adviser if you want to use this strategy, particularly if you plan to convert traditional IRAs to Roth IRAs. Converting the plans all at once before you retire can trigger an increase in AGI and IRMAA.

File an IRMAA Appeal

You can file an appeal with Medicare, asking them to reconsider the IRMAA surcharge after you've retired. You'll have to present proof that your income is lower than the threshold.

Part B Costs for Higher Incomes

The IRS establishes four brackets that determine the charge for Medicare Part B. The brackets change yearly depending upon inflation. Those who fall below certain income thresholds will pay a basic rate. However, the cost rises with each additional tier of income. Top-earners may pay more than three times the basic cost.

Use Solas Wealth as a Resource

The financial professionals at Solas Wealth can help you understand Medicare surcharges and work collaboratively with you to choose the best options for avoiding them. Solas Wealth examines managing surcharges in the context of your overall financial goals and your wealth management portfolio. Our mission is to guide you through life transitions, and Medicare enrollment represents one of those transitions. Schedule a conversation with a Solas Wealth adviser today.