Medicare IRMAA: Trying to Avoid Surcharges and Reduce Your Taxes in Retirement

Medicare IRMAA can blindside people who are about to retire  - and especially those who have recently retired. In this episode of The Perfect Retirement Plan?, Phillip Smith (Financial Planner with Tidepool Wealth Strategies breaks down IRMAA in plain English and shows how smart retirement planning in your low-tide tax window can lower lifetime premiums and taxes. 

You’ll learn about the 2025 IRMAA income thresholds, the 2-year lookback, how Roth conversions and one-time income can trigger the surcharge, and practical ways to set income buffers, time conversions, harvest gains on purpose, and appeal to Social Security with SSA-44 after qualifying life events. If you are an Oregon PERS retiree or OPSRP member, we cover how IRMAA fits into a PERS strategy so your Medicare costs don’t erode your income plan. 

Chapters

00:00 IRMAA shock: why your Medicare bill jumped
 00:24 Who this helps and how IRMAA shows up
 00:55 Today’s roadmap
 01:19 IRMAA basics in plain English
 01:43 Two-year lookback and 2025 premiums
 02:29 Cliffs, thresholds, and single-filer halves
 02:50 The low-tide tax window
 03:13 Strategy playbook overview
 04:02 Set bracket buffers for Roth conversions
 04:25 When to convert: early, throughout, year-end
 04:50 Harvest gains and pair with deductions
 05:21 SALT cap timing and coordinated deductions
 06:01 Muni interest counts; SSA-44 appeal option
 06:25 Common pitfalls to avoid
 07:12 The widow(er) tax bomb
 07:41 Case study: results and lessons
 08:16 Action steps this week

 Subscribe for more retirement planning content, and explore additional videos at @TidepoolWealth or visit TidepoolWealth.com. 

Thanks for tuning in to this episode of The Perfect Retirement Plan, and remember: it's not about having the smartest financial advisor, the most money saved, or the highest probability of retirement success. The perfect retirement plan, for you – is the one you act on.

Phillip Smith, CRPC AIF |  Financial Planner
Tidepool Wealth Strategies
450 Country Club Road, Suite 350 | Eugene, OR | 97401

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Additional Disclosures: 
The opinions contained in this material are those of the author, and not a recommendation or solicitation to buy or sell investment products. This information is from sources believed to be reliable, but Cetera Wealth Services, LLC cannot guarantee or represent that it is accurate or complete.
All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. 

Transcript

Episode: Medicare IRMAA and Your Low‑Tide Tax Window — How to Avoid Surcharges and Cut Lifetime Taxes

Outline

• Intro
• Roadmap
• IRMAA Basics
• Low-Tide Tax Window
• Strategy Playbook
• Pitfalls
• Case Study
• Action Steps
• Closing

[Cold Open]
You’re about to retire and you do a thoughtful Roth conversion to your Roth IRA. 2 years later, a letter shows up and you read that your     Medicare bill jumps by $88 each. That’s over $2,100 a year for the two of you…for crossing a line by $1.

[Intro] 

Hi, I’m Phillip Smith, financial planner with Tidepool Wealth Strategies, helping people close to retirement create tax‑smart, adaptable retirement strategies with clarity and confidence. Welcome to The Perfect Retirement Plan?

Are you close to retirement and working through your retirement planning? Or recently retired and still comparing retirement strategies to try and build some confidence in your first few years? If you experience a sudden market drop, forcing you to reduce income distributions, or have a one-time income spike, from something like a large bonus, a Roth conversion or a property sale, Medicare’s Income Related Monthly Adjustment Amount, or IRMAA, can turn into an unwanted extra. Today we will make sure you know the rules and the moves to try and avoid this additional cost.

[Roadmap] 

Here is where we are wading today. First, IRMAA basics in plain English. Then: why the low‑tide tax window right after you stop working is the best time to plan. I will walk you through the strategy playbook I use with clients, the common pitfalls, and a quick case study. We will wrap with clear action steps you can take this week.

IRMAA Basics - what it is and how it hits IRMAA is an extra charge added to Medicare Part B and Part D when your modified adjusted gross income is over certain limits. It uses a 2-year lookback. So, today, your 2023 tax return sets your 2025 premiums. Or, your income this year will determine your Medicare premium two years from now.

For context in 2025, the standard Part B premium is $185 per month. At the first IRMAA tier for married filing jointly, income above $212,000 up to $266,000 adds $74 per person per month to Part B, and $14 per person per month to Part D. That makes the total Medicare premium Part B $273 per month at Tier One. If your income goes $1 over a tier, you pay the higher amount for all 12 months.

We’ll use married filing joint as our reference throughout. If you are single, the thresholds are exactly half of the joint numbers.

Why this matters now - the low-tide tax window The first few years after you stop getting a paycheck often bring your lowest taxable income. Social Security may not be on yet. Required minimum distributions have not started. That creates space to make tax moves on your terms. I call it the low‑tide tax window. Handle it well and you can fill lower tax brackets, steer clear of Medicare cliffs, and reduce lifetime taxes. Ignore it and you can trigger surcharges you did not need to pay.

Here’s the Strategy Playbook for how I guide clients It’s the framework I use with people who are close to retirement.

We’ll Map multi‑year income. We generally project a few years of modified adjusted gross income. That includes some assumptions on dividends, interest, part-time work, Roth conversions, capital gains, and any property sales. We layer in the year Social Security starts and the year RMDs begin.

Then, annually, we’ll review the room for Roth conversions. Hey, converting from a traditional IRA to a Roth IRA is a taxable event! That means the conversion will count as income. We pick a target bracket and build a buffer under the IRMAA line when and where possible. For example, if the joint Tier One line is $212,000, we might cap projected income at $205,000 to $207,000 to leave room for surprise gains. We commonly convert at the end of the year currently, but there is a lot of reason to consider other methods of conversion timing. One could convert early in the year, throughout the year, or near year end, depending on a number of financial factors.

We also work through harvesting gains on purpose. In low income years we may realize long-term capital gains to reset cost basis while staying inside a target bracket. That gives you future flexibility.

We pair the gains and conversion with deductions. If possible, we’ll work with clients to try and larger deductions or charitable gifts in the same year as conversions to keep income inside the lane.

Those Roth conversions can reduce future RMDs. Small annual conversions in your low‑tide window can shrink later required withdrawals. At age 73 you can also use qualified charitable distributions to send IRA dollars to charity and lower your taxable income.

Remember that tax‑exempt bond interest counts in the IRMAA formula. If you shift into municipal bonds in retirement, they get some favorable tax treatment, but can still push your Modified Adjusted Gross Income - MAGI – higher, even though they are “tax free” on your return.

To round this out, let’s touch on appeal. Not like, charisma – the rizz, as the gen z slang goes. I mean when life changes, like if you retire, lose a spouse, or have another life-changing event that cuts income, you can submit an appeal to Social Security to reduce your IRMAA with Form SSA‑44. It’s worth the attempt.

Keep in mind these pitfalls to avoid. 

First, the one and done conversion. A single huge conversion can push you over 2 IRMAA tiers and raise costs for a full year. Gentle simmer beats deep fry.

Second, those year-end surprises. Selling a rental in December or taking a large distribution late in the year can blow up your income. If possible, move big taxable events into January of the next tax year. Work it out with your tax pro and financial advisor in advance!

Third, the dreaded widow bomb. When a spouse passes, the surviving spouse experiences joint tax thresholds that become single thresholds. That means the barrier to higher taxes are half as high. We try to plan future income and taxes with the survivor in mind.

Here’s an example of a Case study to consider. Linda and Carl are both 63. Their planned income this year without retirement or tax planning is $120,000. We build a buffer lane – some room to reach $207,000 and stay under the joint Tier One line. We convert $87,000 to their Roth IRA in quarterly chunks, harvest a small gain in the brokerage account, and leave a $5,000 dollar buffer. 2 years later their Medicare letter shows the standard premium with no surcharge. Successfully executing this strategy a few more times over the years, the find that when they reach 73, required distributions are much smaller and their lifetime taxes are lower – and smoother.

Let’s take some action on this. First, pull last year’s tax return and circle modified adjusted gross income. Second action, write down your expected income items for the next 2 years. Third, set a target income lane under the IRMAA line and decide how much to convert this year – if a Roth conversion makes sense in your situation. Fourth, schedule a check‑in with your advisor and your CPA before Thanksgiving to confirm the numbers. And fifth, or last action item that I’ll lay out here: if you had a life change that cut income, file an SSA‑44 appeal.

[Closing] 

If you want a deeper dive on how IRMAA fits into the bigger picture, listen to my episode "How Can I Avoid a Tax Bomb in Retirement?" and watch the companion YouTube video. Links are in the description.

Remember, it is not about having the smartest financial advisor, the most money saved, or the highest probability of retirement success. The perfect retirement plan for you is the one you act on.

[Disclosure]

It’s disclosure time! This podcast is intended for educational purposes only and should not be used for any other purpose. The views depicted in this material should not be considered specific advice or recommendations for any individual, are not intended to be financial, tax, or legal advice and are not representative of Tidepool Wealth Strategies or Cetera Wealth Services LLC. For a comprehensive review of your personal situation, always consult with a financial, tax or legal advisor. Neither Cetera nor any of its representatives may give legal or tax advice. Our office address is 450 Country Club Road Suite 350 Eugene Oregon 97401. Securities offered through Cetera Wealth Services, LLC, member FINRA/SIPC. Advisory Services offered through Cetera Investment Advisers LLC, a registered investment adviser. Cetera is under separate ownership from any other named entity.

Sources 

·        Social Security – Monthly Medicare premiums for 2025 and IRMAA brackets (ssa.gov/benefits/medicare/medicare-premiums.html) 

·        CMS – 2025 Medicare Part B premium and deductible fact sheet (cms.gov) 

·        Social Security – Form SSA-44 for IRMAA appeals (ssa.gov/forms/ssa-44.pdf)