John, good to see you, today we are talking through three ways to reduce your IRMAA Penalty for Medicare Part B. If the social security administration considers you a high income beneficiary, you'll pay a surcharge known as the income related monthly adjustment amount, and the first tier starts with modified adjusted gross income of more than $103,000 if you are single, and then $206,000, and you're married filing joint, so John let's just start high level. How does IRMAA work? And what could cause this penalty?

Yeah, well, IRMAA is like lipstick on a pig. It’s that carnival attraction that you go and see those three bottles and you’re like ‘I can knock these three bottles down with this ball no problem’. It's just you know, we call it a premium because we're used to calling, paying for health care premiums but this is a tax, that’s all it is. And it's just adjusted to any income you make, so that could be a rental income, ordinary income, pension income, distributions from your IRA, capital gains, so you really have to understand what IRMAA is based on and that’s your modified adjusted growth income. And the IRMAA tax, let's not call it a premium on this channel. The IRMAA tax is really one of the most egregious taxes for retirees. Because if you go over by just $1 you go into that next tax bracket. So using your example, if you are a married couple making $206,000 and you trigger something that just puts you to $206,001, your monthly premiums are gonna go from 174 an individual to 240 an individual. So that's roughly $70 a month per person, or $140 a month. Times that by 12. And you're well over $1,000 in extra taxes. Even more so, we always talk about this with the Widow Tax because let's say you're a couple and you're $150,000 a year. One of you dies, now you're gonna go into that single filer where it's $103,000, and you're gonna easily go into the next tier. One thing we do want to make sure, though, that you understand that Medicare premiums or Medicare taxes are based on a two year look back. So whatever you did two years ago, that's going to adjust to your Medicare.

All right, thanks for that breakdown. So now let's get to the three strategies then to reduce that IRMAA tax and first you say, Roth conversions and why is that? Well, Roth conversions are a way to manage your tax taxable liability in the future and Medicare is one of those ways. So if you've got a lot of money to those tax free Roth accounts, and in the future you start taking distributions from those Roth accounts, especially if you're a widower, then they don't count towards your income and they do not increase your IRMAA. Now, again, remember, if you're doing Roth conversions, you have that two year look back and Roth conversions count as income. So when we're doing Roth conversion planning, we're always taking into account tax brackets, and the monitor–modified adjusted gross income for the IRMAA tax.

So much to consider. Next you say open and invest in a health savings account which is uniquely triple tax advantaged. I know you're a fan of these accounts John.

Yeah and a couple of things, you have to be enrolled in a high deductible medical plan first of all, and you can’t actually be enrolled in Medicare. So if you're able to contribute to one of these, why are they so powerful? The money goes in pre tax, it grows tax deferred, and if it's for medical expenses, comes out tax free. So just like a Roth IRA if you need to pay for medical expenses, instead of maybe having to take the money from a taxable IRA account, which will affect your IRMAA, the HSA will come out tax free and will not affect or hinder your IRMAA account or IRMAA taxation.

And the third strategy qualified charitable distributions.

Yes, and this is one for clients, for people over age 70 and a half. If you're making charitable distributions, hey, you may not be getting a deduction, which is not lowering your income which is not helping out your IRMAA cause. Also, you may be taking deductions from the wrong account. A, perhaps, a more tax favorable 15% long term capital gains rate. Instead, you could have qualified charitable distributions from your IRA. Now a couple of things have to happen. This money has to be the first money out of that particular IRA account. That's very important. And secondly, the money must go directly from the account to the charity. So I typically have my clients have a check mailed to the charity, or mailed to the client in the charity's name. And this way the money comes out of your IRA, and you're never taxed on it. So you're able to actually get that tax donation and have a positive effect on your IRMAA and Erin if I can give one last bonus, one that I'm gonna throw in here. If you had, if you just retired and you are a high income earner, and let's say you're 63/64 and you just retired at age 65. You need to petition to Social Security Medicare, that you had a major life change, that in retirement you are making significantly less money than you did when you were working. Because that, as I have seen with clients, can lower you from the second or highest tax bracket into one of the lower two tax brackets. That's significant savings. We're talking 1000s of dollars in Medicare taxes saved by just completing that form.

Right, absolutely. John, I say this with love, you're such an IRMAA nerd. So many great little nuggets in here, so many moving parts, and I know that you've worked really hard to kind of collate all these videos and great resources on your website and also your YouTube page so people can go there if you have any questions.

Yeah, definitely subscribe to our YouTube because not only do we have this full length video, but we're gonna have YouTube shorts on just little nuggets. Subscribe to the Retire Happy Podcast, where my good friend and colleague Tom O'Connell and I, we interview experts in Medicare and social security, and other retirement topics. And after that, you can always visit our website, www.gosecurus.com. We have a host of articles, podcasts and videos on there. And while you're on our website, you can visit the Contact Us Tab where you can schedule a 20 minute complimentary phone call, or a 60 minute complimentary vision and clarity appointment. If, though Erin, you like doing things the old fashioned way, you can always give us a call at the office at (858)935-6210, ask to speak with Emily Wale and she will get you on my calendar.

All the ways, perfect. John, thank you so much for your time today.

Thank you, Erin.