October 2022
Tax Planning

How Income Affects Medicare Premiums

By Corrina Olson

Did you know that Social Security Income, pensions, IRA withdrawals, dividends, interest, and capital gains from non-IRA assets can increase your Medicare premiums? You are probably wondering how and in what way. In honor of October being the kick-off to Medicare open enrollment, we wanted to highlight how your income can impact your Medicare premiums.

Medicare premiums are based on your modified adjusted gross income, or MAGI. All your sources of income can impact your MAGI. If you have higher income, you’ll pay an additional premium amount for Medicare Part B and Medicare prescription drug coverage. The additional amount is called the “income-related monthly adjustment amount,” or IRMAA. Social Security uses tax information from the year before last to determine if you are a “higher-income beneficiary” and they will tell you if you have to pay higher premiums. The income limits are released annually. For 2023, premiums will start to increase at $97,000 for single filers and $194,000 for married filing jointly.

Exactly how much can a high income impact your Medicare premiums? For most beneficiaries, the government pays a substantial portion — about 75% — of the Part B premium, and you pay the remaining 25% ($164.90/monthly in 2023). If it is determined that you’re a higher-income beneficiary, you’ll pay a larger percentage of the total cost of Part B based on the income you normally report to the Internal Revenue Service (IRS).

If you have both Medicare Part B and Medicare prescription drug coverage, you’ll pay higher premiums for each. If you have only one, you’ll pay an income-related monthly adjustment amount only on the benefit you have. If you decide to enroll in the other program later in the same year, an adjustment will automatically be applied to the other program when you enroll.

What does this mean for your retirement plan? When looking at your retirement plan, you want to be conscious of the income limits and make decisions accordingly. Should you consider a conversion to a Roth IRA? Is it time to start gifting some of the dividend stocks? Is charitable lumping an option? Does the higher premium impact your overall success in retirement? Like all financial decisions, it depends on your situation and your goals.

If you find yourself paying higher premiums, you may want to explore different ideas to minimize Medicare premiums paid. We would be happy to discuss your individual circumstances to see what makes sense for you and your plan.

If you have questions, please contact us.

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To download the October 2022 Newsletter: CLICK HERE