Many retirees and near-retirees are aware that Medicare is not free. Although most enrollees do not pay a premium for Part A, which covers inpatient care, there are monthly premiums that must be paid for Part B, which covers outpatient care.
Each year, Medicare sets a standard monthly premium for Part B. This year, it is $202.90.
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But some Medicare enrollees have to pay much more for Part B. If you’re one of them, your costs could easily double.
Medicare is not reserved just for low-income seniors. But if you make too much money, you may have to pay more for Part B.
Seniors with higher incomes may be subject to income-related monthly adjustment amounts, or IRMAA. They are basically surcharges on your premiums and apply not only to Part B, but also Part D.
But while Part D IRMAAs may increase your costs, they are lower than Part B IRMAAs. Part B IRMAAs could add hundreds of dollars a month to your premiums.
This year, IRMAAs apply to Medicare enrollees with a modified adjusted gross income (MAGI) of more than $109,000 for singles, or $218,000 for couples filing jointly. But IRMAA are tiered and increase based on income level.
If you are single and have a MAGI of $120,000, $81.20 per month will be added to your Part B costs, bringing your total monthly premiums to $284.10. But if you are single and have a MAGI of $150,000, your IRMAA will be $202.90. That means you’re looking at double the cost of the standard monthly Part B premium: $405.80.
The highest IRMAA applies to singles with a MAGI over $500,000 and joint filers with a MAGI over $750,000. In that case, the IRMAA is $487 and the monthly cost of Medicare Part B is a whopping $689.90 per month.
You might think that if you have a healthy retirement income, IRMAAs are inevitable. But that’s not necessarily the case.
You should know that Roth retirement plan withdrawals do not count toward your MAGI. So if you have your savings in a Roth IRA or 401(k), the distributions won’t put you any closer to IRMAAs.
If you don’t have Roth savings, it may be worth converting your traditional retirement accounts to Roth accounts before you enroll in Medicare. But you will have to be careful with time.
IRMAA are based on your MAGI from two years ago. If you make a large Roth conversion at age 63, it could result in higher costs if you enroll in Medicare at age 65.