Some Retirees Face a $487 Monthly Medicare Surcharge. Are You 1 of Them?

Healthcare may end up being one of your biggest expenses in retirement, if not the biggest. So it’s an important thing to budget ahead of time.

You may be familiar with Medicare costs on a basic level. Part A, for example, does not typically charge enrollees a premium, but Part B works differently.

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There’s a standard monthly premium enrollees are charged for Part B that changes every year. This year, it’s $202.90.

But some Medicare enrollees have to pay a lot more for Part B. And depending on your income, you may find that on top of the standard monthly premium, you’re looking at an additional $487 a month for your coverage.

The trap of being a high-income retiree

Retiring with a lot of money might seem like the dream – until you realize that having a higher income as a senior causes you to pay more for Medicare.

Medicare imposes surcharges known as income-related monthly adjustment amounts, or IRMAAs, on higher earners that can drive the cost of Part B way up. IRMAA thresholds change each year and depend on your income from two years prior.

This year, if you’re a single tax-filer with a modified adjusted gross income (MAGI) above $109,000, or a joint filer with a MAGI above $218,000, IMRAAs start to kick in. But the higher your MAGI, the higher your IRMAA might be.

The highest IRMAA applied to Medicare Part B premiums this year is $487 a month. That surcharge is assessed for singles with a MAGI of $500,000 or more, or joint filers with a MAGI of $750,000 or more. And if you fall into that category, your total monthly cost for Medicare Part B could reach $689.90 this year.

How to get around IRMAAs

While IRMAAs could make Medicare very expensive, the good news is there may be some workarounds that help you avoid them – or at least avoid the maximum IRMAA.

One option is to time withdrawals from your retirement savings strategically. Rather than take a huge lump sum distribution in a single year, spread it out. If you’re doing a Roth conversion, for example, space it out over several years to minimize your MAGI on a yearly basis.

Also, if your income has dropped due to certain life events, like divorce or the death of a spouse, it may be possible to appeal your IRMAA. Medicare may adjust your premiums to account for your current financial situation rather than what it looked like two years ago.

Most Medicare enrollees don’t face IRMAAs, let alone a $487 monthly surcharge. But it’s important to know that top earners could face an IRMAA that large so you can plan around it if you think you’re at risk.