00:00:00
If the Social Security Administration considers you a high income beneficiary, you will pay a sir charge known as the income related monthly adjustment amount. Peter, hello. Good to see you and welcome back everyone. Today we’re going to talk through what is Irma? I feel like we’ve all probably heard about it and discuss how it affects what you’ll pay for Medicare Part B. This is a really important topic, Peter. I know you know that if the Social Security Administration considers you a high
00:00:33
income beneficiary, you will pay a sir charge known as the income related monthly adjustment amount. >> Yeah, we all ac so many Irma is so much easier to say. How high is high income? >> Uh it’s it’s actually not all that high, right? um about $109,000 for single filers and about twice that, about $218,000 for a married couple and you begin to encounter Irma. Now, that sounds like a pretty reasonable amount of income and and and it is, but the Irma bracket thresholds as you continue
00:01:08
going up the scale continue to get more and more expensive and that amount of income is not what it used to be. But essentially this is means testing. And the the more income you have, the better you have been at at at saving or working and earning um pensions and social security is included in part of this. Like as you climb and you have more income, including withdrawals from your retirement accounts, then you may encounter this means testing. meaning that your premiums for your Medicare, Part B and Part D, are going to be more
00:01:45
expensive than they otherwise needed to be. >> All right. I consider this just a little bit muddy. So, walk me through Irma and Medicare Part B. Is is Irma strictly Medicare? What do I need to know? >> Medicare Part B and Part D. So, uh the the Part A is like the base Medicare and that part is free. Uh but when you start to add the plans that cover actual health care expenses and prescription drugs, that is when you have expenses, those plans do have a a base expense and you have those Irma bracket thresholds.
00:02:24
And again, like they they start going up and you could be paying significantly more than just the base premium amounts for your part B and part D. It can get pretty expensive. Um, and you look at a married couple paying twice that extra amount each month, year after year of retirement, and this can build up to be a really significant amount. And what I I really actually worry about here with how Irma was enacted and put into place is that part B and part D of Medicare are actually now with Irma functioning
00:03:05
relatively well um out of general revenue compared to other aspects of government entitlements such as Part A or Social Security, right? And so when we look at government budgeting and accountability and they look at, hey, well, we put this extra means testing sir charge on part B and part D and it it’s working well to bring in the revenue. My concern is that they expand that and they say, well, if it worked over there, why not try it over here? And that we see more of this means testing as the years go go by on our
00:03:39
entitlement programs. Mhm. Mhm. And then just to kind of take one step back real quick as we think through how this will affect our budget and whatnot, Irma is a cliff. If you make $1 more into that next threshold, you’re paying that entirely new amount, >> right? And and people get caught off guard with that. They they have that one extra dollar that creeps them in. We talked about the Affordable Care Act, uh the the regular health insurance cliff just a couple weeks ago here, but uh
00:04:08
that that continues with Medicare. If you are a dollar over that uh that $218,000 limit, then your premium prices go up. If you are a dollar over the $274,000 limit, they go up again. If you’re $1 and and and so on and so forth. And so you can be paying um $22 more per month than you need to all the way up to about $670 more per month than the base expenses would otherwise be as you cross these different brackets into the next one. And $1 throws you over that bracket. Mhm. And people who are observant
00:04:47
viewers will notice Peter in our visual here and for those listening on the radio we can explain this is Medicare 2026 part B premiums by income if your filing status and yearly income in 2024 was what? >> Right. They look back two years on this. Right. Yeah. So your income this year is going to affect us and your your Medicare premiums two years down the road. which is kind of odd because you know people are like well okay I I am now 65 claiming Medicare and I am retired so my income is low so I should
00:05:20
not be penalized on this and then the government in their wisdom looks back two years at 2024 and says well you were working two years ago and that’s the income that we’re qualifying this off of. So, right, you actually can apply for an exception to Irma. And if you’ve had a lifechanging event and your status has changed and you would not now encounter Irma at your current income level, there there is some rationality and some reasonable people, it seems, behind the register of of some
00:05:53
government entity here who determine the the Irma and you can potentially get that waved. But if you get it waved and then it comes back and turns out that you would have encountered it, you’re going to have to pay back all of those premium payments that you would have been uh responsible for and they are probably not quite as apt to forgive it into future years. So just make sure that if you apply for that that it you aren’t going to end up qualifying for Irma and it truly is a life-changing
00:06:22
circumstance. >> Right. On the other hand though, walk me through some of those one-time events that could bump up your income that people might not be thinking about when it comes to this search charge. >> Um, I’ve seen people unfortunately like trading in nonqualified investment accounts and the capital gains ended up throwing them over. I’ve seen people sell a house and the proceeds from the sale of a house ended up throwing them over. Uh I I I I see it actually with Roth conversions and that
00:06:55
is avoidable and something we do want to avoid unless we are intentionally encountering Irma which actually might be a strategy as well to do it so that it’s a shorter term strategy rather than something that we’re going to end up encountering for the rest of our lives. A and certainly the encountering it for the rest of our lives. If you have built up a sizable IRA, tax deferred IRA and those RMDs start, then Irma might be a permanent status of your life unless you otherwise plan effectively. Well, then
00:07:30
Peter, let’s talk through planning effectively and the strategies that we can put in place right now to create a little bit more tax diversification, which I know we’ve talked about many, many times, but what are those three strategies we can put in place today to reduce the chances that we’ll get hit by Irma? >> Well, first have some HSA funds if you have that uh type of plan available to you. An HSA is triple tax-free. You can put it in, not pay any taxes. it grows tax-free and then if you pull it out for
00:08:00
qualifying medical expenses that is also taxree and that taxfree income then does not go into the equation with all the rest of your income that would have you encountering Irma. Um, QCDS are a great strategy, qualified charitable distributions. If your RMD required minimum distribution would put you in a place where you are encountering Irma, the income related monthly adjustment amount, then a QCD, a qualified charitable distribution. Gosh, that’s a lot of acronyms, would be something that
00:08:33
could help you potentially avoid it if you are charitably inclined. If you’re already giving, gifting, tithing, donating to a 501c3, then you can do that directly out of your IRA and and then you can use those dollars to offset the RMD. And then finally, and what we probably utilize the most is Roth conversion strategies. So if we are going to foreseeably be encountering Irma for the extended period of the the rest of our foreseeable lifetime because of required minimum distributions then a
00:09:10
lot of times and in our office we we have some advanced software. We can we can crunch the numbers and quantify this in a dollar amount and a number of years, but we can compact the amount of time that we are ultimately going to be encountering Irma through Roth conversions, which means that you pay taxes upfront and and and you convert otherwise tax deferred dollars to the Roth side. You move it from your left pocket to your right pocket. You do have to pay tax along the way. And oftentimes this means that we are also encountering
00:09:42
Irma as we make these conversions. But we could see an end in sight to when when we will be out of having to pay Irma. There’s some additional advantages there to Roth conversions to avoid the widows penalty for taxation to uh keep keep a surviving spouse potentially out of Irma and lower tax brackets and for beneficiaries. But the big one that I see is people are looking at these RMDs and they’re saying, “Hey, if I wait and continue deferring and delaying, then once those kick on, I am going to be
00:10:19
encountering not only higher income tax than necessary, but these Irma penalties, why don’t we get a jump on it and proactively begin to manage that and convert to Roth?” And so, we’re doing that along the way. typically uh you know once somebody is retired kind of the window of opportunity from that point until those RMDs kick in and seeing how much we can manage that and bring the total amount of tax down as well as hopefully uh limiting the amount of time that we are exposing ourselves
00:10:47
to earn >> right and and just to kind of explain this Peter for anybody who’s kind of new to this conversation when we talk about tax-free income it doesn’t count in these numbers right Peter If I if I have $100,000 a year that’s coming from my Roth account. >> Yep. >> It’s nowhere in this bracket. It’s a zero for the government’s sake. >> Yeah. Or or or you’re pulling uh money from an after tax account. The Roth account is is obviously that’s 100% no
00:11:16
question all tax-free if you’re pulling it out in retirement and you’ve met all previous uh rules for getting it in there. But also nonqualified investment. we can generally harvest those dollars in a more tax advantaged way to where not all of it shows up as taxable income. So, there are a number of different um strategies for how to have some income but not have taxable income. Yeah. And you’re exactly right, Aaron. As long as it’s not taxable income, then it doesn’t go into this equation where
00:11:48
we might encounter Irma, which ultimately is going to be more expensive than we thought. So we’re having to pull more out of accounts than we thought and those are also taxable to others oftentimes. So it’s kind of a vicious cycle and the dominoes get stacked in the wrong order and then they fall against you rather than in your favor. Or you can be proactive which is what we try to do at Rashan planning with our clients is be real proactive on this. Put together the the tax and the health
00:12:13
care expenses kind of as as part of the planning process in that optimized retirement plan. Mhm. I think a lot of us think we have very little autonomy when it comes to what we end up paying the government in taxes, but we do as long as we put a plan in place sooner rather than later. So, as we mentioned, Peter, there are a few strategies that could help with that. So, if somebody would like to talk through, you know, Roth conversions, HSAs, QCDs, and all the other acronyms with you, Yeah. what’s the best way to reach you?
00:12:43
>> Uh, give me a call. 91930005886. That is a a courtesy service that we offer to put together that optimized retirement plan. We’ll help you address the Irma, the taxes, the investment allocation, the income planning, all of that going together, and ultimately try to optimize your situation and your results. I believe it was judge learned hand who said it’s no man’s responsibility man or woman to pay the highest tax burden possible and that tax avoidance or tax management is not the
00:13:17
same as tax evasion. Uh one is illegal the other two are completely legal and should be utilized. We should be controlling our taxes through the strategies that are available to us. A and they are completely legitimate ways to keep more of your money, which ultimately is is I think the goal that everybody has. Generate the the income that we need, keep more control of our money, pay less in taxes, all things that we try to help our clients achieve and accomplish. >> Agreed. Peter, thank you for your time
00:13:50
today. >> Thank you, Ron. Hey folks, Peter Rashan here with Rashan Planning. So glad that you are enjoying the podcast Planning Matters Radio. You know, one of the tools that we’ve put out there that people really seem to appreciate and really are are finding of value is at 919.com. It is your retirement tax bill calculator. If you’ve got any kind of retirement account, your tax deferred 401k or IRA, this is the website. This is the resource where you can go, you can plug in your own numbers, your
00:14:34
information. You can slide the the the tool calculator up and down for your tax rate or your amount of savings and see what your tax bill is likely to be if you default and defer to the IRS’s plan versus what you could potentially bring that tax bill down to. A lot of times it is a very significant savings. So if you have not yet, go to the website 919retired.com. Run your numbers on the retirement tax bill calculator. >> This has been planning matters radio. >> The content of this radio show is
00:15:10
provided forformational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to seek investment, tax, or legal advice from an independent professional adviser. Any investments and/or investment strategies mentioned involve risk, including the possible loss of principal. Advisory services offered through Brooks Own Capital Management, a registered investment adviser. Fiduciary duty extends solely to investment advisory advice and does not extend to other
00:15:33
activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under management, while insurance products pay a commission, which may result in a conflict of interest regarding compensation.
