Do your clients know about IRMAA?

I entered the financial services profession in 1975, and with a 50-year career under my belt, you can safely bet that I am covered by Medicare today. I started taking Social Security at age 70. While that may not be the most popular choice for many today, my hope is to live a long and meaningful life into my 90s. So, as a financial professional and a card-carrying participant in both Medicare and Social Security, I have a great deal of experience both personally and with many of my customers with these federal social insurance programs and how they fit into retirement plans.

The biggest shock many Social Security and Medicare beneficiaries face is, without question, a financial regulation called the income related monthly adjustment amount or IRMAA. IRMAA was passed into law in 2003 and enacted in 2007 and affects around 8% of individuals and couples enrolled in Medicare. The purpose of IRMAA, according to Medicare, is to ensure that wealthier beneficiaries pay higher premiums by means of a surcharge. Additionally, in 2011, the Affordable Care Act expanded IRMAA to include Part D prescription drug coverage. 

As financial professionals, we need to prepare our older clients who are likely to have significant income for IRMAA. It’s important that accounting for (or reducing) the IRMAA surcharge be part of their retirement plan.

How IRMAA works

Here’s how IRMAA comes into play: For 2025, Medicare participants pay $185 a month for their Part B Medicare coverage, which covers physicians’ fees and other outpatient medical expenses. If, however, the income on one’s federal tax returns for two years previously (through 2023) meets or exceeds $106,000 for individuals or $212,000 for joint filers, their monthly Medicare premium jumps by $74, to $259. 

And it can go up and up and up. For example, if their income in 2023 was over $133,000 for single filers or $266,000 for joint filers, IRMAA’s markup will double their 2025 Medicare premiums to $370 per month. The maximum surcharge in 2025 is $480.90 for single filers making more than $200,000 or joint filers making more than $400,000. These surcharges can be significant jolts to the finances of retirees who aren’t expecting them. 

Unfortunately, it doesn’t end with the Medicare Part B premium. As mentioned previously, a similar assessment applies to high-income beneficiaries enrolled in Medicare Part D, which covers prescription drugs. Furthermore, it is important to understand that the government uses a two-year “look back” at income to determine whether your client should pay a surcharge.                                                                                                                           

If there is any saving grace here it is that IRMAA is not a lifelong sentence. It is reevaluated annually and based on tax returns from the two prior years. That means that if their income falls below the threshold, a Medicare recipient’s IRMAA can decrease or cease. 

It is also vital for clients to understand that surcharges are based on one’s total income from all sources. This includes even one-half of Social Security benefits. Large, one-time financial events can also push existing Medicare recipients into a higher bracket and potentially trigger a surcharge for unsuspecting consumers. 

For example, have large withdrawals been made from an individual retirement account or has a large portion of a traditional IRA moved over to a Roth? Has rental property or a house been sold recently with a sizable capital gain? What about profits made from selling land, commercial real estate, timber property or mineral rights? Is a Medicare recipient still working and drawing a sizable income? Any of these situations could subject a client to surprise IRMAA payments. As financial professionals, we need to make sure our clients are aware of the situation and that surprises don’t derail their financial plans.

IRMAA often comes as a complete surprise to older Americans, particularly those who are new to Medicare. They look to financial professionals to help them understand complex Medicare and Social Security rules, such as IRMAA. You don’t want to explain IRMAA to clients after they have taken a substantial hit. A little knowledge on the front end can go a long way.

Ike S. Trotter, CLU, ChFC, operates the Ike Trotter Agency in Greenville, Miss. He may be contacted at [email protected].