Learn Why Your Medicare Part B Premium Can Vary and How to Reduce It

Most people pay the standard rate for Medicare Part B premiums, but those with higher incomes pay more. The amount you pay for Medicare Part B premiums is determined by your Modified Adjusted Gross Income (MAGI) from two years ago. Your MAGI is an adjustment to your AGI due to various tax deductions and credits.

To calculate your MAGI from your tax return, you’ll need to crunch some numbers, but tax preparation software can help. It’s sometimes delivered automatically as part of your analysis for that year’s return. Your tax accountant can also provide you with the MAGI figure.

Once you have your MAGI from two years ago, you may use it to calculate your Medicare Part B premium. To do so, navigate to the relevant Income Related Monthly Adjustment Amount (IRMAA) table. The Internal Revenue Service updates the table once a year. Then, within the table, you must locate your MAGI within the appropriate MAGI columns. The higher the MAGI, the greater the IRMAA.

The relationship between MAGI and Medicare Part B premiums is seen in this table.

In retirement, the challenge is maintaining your MAGI low enough that it doesn’t push you into a higher bracket on the IRMAA table for Medicare Part B premiums. For example, if an individual filing as a single has a MAGI of more than $91,000 or a couple has a MAGI of more than $182,000 on the 2020 tax return—even if only one dollar more, the monthly premiums will increase. That extra dollar above $91,000 would be an additional $68 per month or $816 per year for a single individual. For a couple who files jointly, it would be $136 per month or $1,632.

Dispute Your Medicare Part B Premiums

If one expects their MAGI to be lower due to a life-changing event, one might request that the Social Security Administration reevaluate the Medicare Part B premium. Retirement, divorce, and the death of a spouse are examples of such events. To request a decrease in the projected MAGI, use Form SSA-44.

Consider the scenario of a person who retires in 2021. She is now 65 years old and filing as a single individual, with a MAGI of $115,00.00 in 2020. Her monthly Medicare Part B premium will be $340.20. That’s because Social Security calculates her payment based on her MAGI from her tax return for 2020.

This person is eligible to use Form SSA-44 to appeal her premiums. Because of her recent retirement, she can ask the Social Security Administration to reconsider her Medicare Part B premium because her present and future income will be lower than her 2020 MAGI. She can do this using Form SSA-44 to request a decrease in the MAGI to be used in the IRMAA table. She should provide documents from the Office of Personnel Management proving her annuity status in 2021.

How to Reduce MAGI and Medicare Part B Premiums

Individuals and couples with significant taxable cash flows should plan for future MAGI in retirement years and its influence on future Medicare Part B rates. That’s because the future premium based on the future IRMMA table is looking back to the MAGI from two years ago.

Planning for tax-free income as a relief source can help reduce future MAGI. While you’re working, directing a part of your Thrift Savings Plan contributions to a Roth Thrift Savings Plan account while working generates a future tax-free reservoir. Roth account payouts are exempted from MAGI.

Roth IRAs can also be utilized to accumulate future tax-free income. Remember that if the working spouse earns income, the non-working spouse can also have a Roth IRA.

Contributions to Roth IRAs always require earned income, and contributions start to be tapered out if income falls between the amounts shown in the table below. When income exceeds the levels shown in this table, the option of Roth IRAs is eliminated.

Another option is to transfer a portion of your TSP Traditional account into a Roth IRA while your taxable income is low due to early retirement. This action will generate taxable income in the year of conversion. As a result, pay attention to the year of conversion, and the two-year window MAGI utilizes to calculate Medicare Part B rates at age 65.

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After entering the financial services industry in 1994, it was a desire to guide people towards their financial independence that drove Aaron to start Steele Capital Management in 2013. Armed with an extensive background in financial planning and commercial banking coupled with a sincere passion for helping people, Aaron has the expertise and affinity for serving the unique needs of those in transition. Clients benefit from his objective financial solutions and education aligned solely with
helping them pursue the most comfortable financial life possible.

Born in Olympia, Washington, Aaron spent much of his childhood in Denver, Colorado. An area outside of Phoenix, Arizona, known as the East Valley, occupies a special place in Aaron’s heart. It is where he graduated from Arizona State University with a Bachelor of Science degree in Business Administration, started a family, and advanced his professional career.

Having now returned to his hometown of Olympia, and with the days of coaching his sons football and baseball teams behind him, he now has time to pursue his civic passions. Aaron is proud to serve on the Board of Regents Leadership for Thurston County as the Secretary and Treasurer for the Morningside area. His past affiliations include the West Olympia Rotary and has served on various committees for organizations throughout his community.

Aaron and his beautiful wife, Holly, a Registered Nurse, consider their greatest accomplishment having raised Thomas and Tate, their two intelligent and motivated sons. Their oldest son Tate is following in his father’s entrepreneurial footsteps and currently attends the Carson College of Business at Washington State University. Their beloved youngest son, Thomas, is a student at Olympia High School.

Focused on helping veterans and their families navigate the maze of long-term care solutions, Aaron specializes in customized strategies to avoid the financial crisis that care related expenses can create. Experience has shown him that many seniors are not prepared for the economic transition that takes place as they reach an advanced age.

With support from the American Academy of Benefit Planners – an organization with expertise and resources on the intricacies of government benefits – he helps clients close the gap between the cost of care and their income while protecting their assets from depletion.

Aaron can help you and your family to create, preserve and protect your legacy.

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Disclosure:
Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice has been filed, or is excluded from notice filing requirements. This information is not a complete analysis of the topic(s) discussed, is general in nature, and is not personalized investment advice. Nothing in this article is intended to be investment advice. There are risks involved with investing which may include (but are not limited to) market fluctuations and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making any investment decision. You should consult a professional tax or investment advisor regarding tax and investment implications before taking any investment actions or implementing any investment strategies.