How to Help Clients Avoid Medicare IRMAA Surcharges

Here are some ways to help clients avoid Medicare IRMAA surcharges in future years.

Charitable Giving — QCDs

Qualified charitable distributions can help eligible clients reduce potential IRMAA surcharges in a couple of ways.

Clients are eligible to take QCDs at age 70.5, and this can be a tax-efficient way to make charitable contributions for those who cannot itemize deductions. Money comes out of their traditional IRA tax-free and is transferred directly to a charity. QCDs also reduce future required minimum distributions by reducing the balance in the account, including future earnings on the amount distributed. This can result in lower MAGI in future years once clients start taking RMDs, helping to reduce any related IRMAA surcharges.

Once a client starts RMDs, QCDs can be used to cover some or all of the required distribution for the year. This eliminates the taxable income normally generated by taking the RMD and thus reduces the MAGI upon which any IRMAA surcharge would otherwise result.

Roth Conversions

The effects of Roth conversions on IRMAA surcharges is complicated. On one hand, converting money from a traditional individual retirement account to a Roth IRA removes these funds and any future appreciation from future RMDs. All else being equal, this will result in a lower MAGI than if the money had not been converted.

However, Roth conversions create taxable income in the year of the conversion. This income could contribute to a client having to pay an IRMAA surcharge two years later if the conversion is done in an otherwise higher income year. Once clients get within two years of starting Medicare, be sure that the income generated by the conversion does not propel them into a significantly higher income bracket, potentially triggering a future IRMAA surcharge.

Roth Contributions

Making Roth contributions to retirement plans like a 401(k) can be a good way for clients to reduce future income during retirement via lower RMDs due to lower balances in traditional retirement accounts. In turn, this can help reduce or eliminate exposure to IRMAA surcharges in future years.

Deciding when and whether to make or increase a client’s Roth contributions to workplace retirement plans, or if eligible to a Roth IRA, means weighing the current income and tax situation against the potential future tax benefits of reduced RMDs.

One thing to note are two adjustments to the catch-up contributions for 401(k) and other defined contribution plans.

Beginning in 2025, the catch-up contribution limits increase to $11,250 for ages 60 to 63. These “super catch-up” contributions will be increased for inflation in 2026 and in subsequent years.

Beginning in 2026, “high earners” defined as plan participants who earned $145,000 or more in 2025 must make their 401(k) catch-up contributions to a Roth account.

Both of these new rules can be used to initiate or add to Roth contributions. In the case of the “super catch-up” contributions, this can help clients balance their Roth and traditional contributions.

Pre-Tax Retirement Contributions

For clients still employed or self-employed and on Medicare, contributing to an available traditional retirement plan account on a pre-tax basis can help reduce taxable income in the year of the contribution.

This can be a bit of a conflict, however. The income reduction from making pre-tax contributions can serve to lower income in the year of the contribution and can help reduce or eliminate an IRMAA surcharge two years later.

The downside of pre-tax contributions to a traditional retirement account is that these contributions, plus any earnings on these contributions, can lead to higher RMDs in future years, and perhaps greater exposure to IRMAA in those years.

Social Security Timing

Timing when clients claim their Social Security retirement benefits can play a role in their exposure to Medicare IRMAA surcharges.

Delaying benefits can lower their MAGI during the early years of retirement and can allow for retirement plan withdrawals and Roth conversions in years of lower income. Both of these can help reduce RMDs in future years, also potentially lowering their MAGI and reducing their future potential IRMAA surcharges.

Managing Taxable Income

During years when clients' income will be tied to potential future IRMAA surcharges, managing their taxable income is very important. In the case of retirement income, this means a blend of withdrawals from traditional retirement accounts, Roth accounts and taxable accounts. Which type of account is tapped in which year should be managed based on a client’s overall tax situation for the year to minimize taxable income to the extent possible.

Managing taxable income also includes managing the timing of taxable events. This includes selling out of large appreciated taxable investments or other holdings, when distributions from traditional retirement accounts are taken, selling an interest in a business and other taxable distributions. Clients should try to take these distributions in years where their other income is on the low side to minimize the impact on their MAGI and future IRMAA surcharges.

Appealing an IRMAA Determination

If clients receive a determination notice from Social Security indicating that they will be assessed the IRMAA surcharge on their Medicare premiums, they can appeal if their circumstances have changed. The following are examples of what the Social Security considers to be life-changing events:

• The death of a spouse
• Marriage, divorce or the annulment of a marriage
• Spouse(s) having stopped working or having reduced the number of hours worked
• Loss of an income-producing property
• Loss of a pension benefit
  

To file an appeal, a client will need to complete Social Security form SSA-44 and include appropriate supporting documents. If the initial appeal is denied, there are several additional levels of appeal, with the last one being the nearest U.S. district court.