Understand the Expenses of Medicare and How Part B and Part D Cost is Based on Your AGI: 

This lesson provides a crucial overview of Medicare's cost structure, emphasizing that premiums for Parts B and D are directly linked to a person's income. It will specifically explain the Income-Related Monthly Adjustment Amount (IRMAA), an additional surcharge for higher-income individuals, and offer practical tax-planning strategies to help retirees minimize their Adjusted Gross Income and avoid these costly surcharges.

Lesson 7: Understanding the Expenses of Medicare 🩺

Lesson Objectives:

• Objective: To provide a clear overview of Medicare's cost structure, specifically focusing on the premiums for Parts B and D.

• Objective: To explain the direct link between a person's Modified Adjusted Gross Income (MAGI) and their Medicare premiums.

• Objective: To introduce the concept of the Income-Related Monthly Adjustment Amount (IRMAA) and how to potentially avoid it.
  
  

Lesson Content:

1. Medicare Part A, B, and D: A Quick look:

   • Briefly explain the different parts of Medicare. Focus on the cost structure.

   • Part A (Hospital Insurance): Free for most people who have worked and paid Medicare taxes.

   • Part B (Medical Insurance): Has a monthly premium, which is the main focus of this lesson.

   • Part D (Prescription Drug Coverage): Also has a monthly premium.

2. Your Income and Your Premiums:

   • Explain that the monthly premiums for Parts B and D are based on your Modified Adjusted Gross Income (MAGI).

   • Crucially, explain the "two-year lookback" rule. The premium you pay in 2025 is based on your MAGI from 2023.

   • Discuss what's included in MAGI for this purpose: AGI plus tax-exempt interest and certain other deductions. This is a very important concept.

3. IRMAA: The High-Income Surcharge:

   • Define IRMAA (Income-Related Monthly Adjustment Amount) as an additional premium surcharge for Parts B and D for people with higher incomes. Explain based amounts.

   • Walk through the income thresholds for the different IRMAA tiers for 2025. For example, for individuals, the first IRMAA tier begins at a MAGI above $106,000.

   • Emphasize that a single dollar of income can push you into a higher IRMAA bracket, significantly increasing your premiums for the entire year.

4. IRMAA Part B and Part D premiums for 2025:

   • This chart shows the expense and surcharges

   • Chart is for year 2025 and is based on your 2023 MAGI

   • Note the difference limits for individual and joint filing

5. Strategies to Avoid IRMAA:

   • Connect this lesson back to Lesson 6. Explain that this is where proactive tax planning becomes critical.

   • Example: A large Roth conversion or a significant capital gain in one year could unexpectedly trigger an IRMAA two years later.

   • Strategy: By managing your income to stay below the IRMAA thresholds, you can save hundreds or even thousands of dollars in annual Medicare premiums.

Lesson Resources

2026 Tax Brackets

Income related monthly adjustment amount (IRMAA)

IRMAA Premium MAGI Brackets (present and future)   For 2027

IRMAA-The Medicare Tax on High Income People - 35 min. video

Joe's IRMAA Calculator' google sheet (for general info, sheet is incomplete and may no be updated)

1. View-Only Access: This link opens the spreadsheet in Google Sheets, allowing you to view its contents without the ability to make any changes. No google account needed.

2. Make a Copy: You will need a Google account to use this link. It allows you to copy the file to your own Google Drive, where you can then open and edit it. Once the file is copied, you will have full editing permissions.