5 Ways to Avoid Medicare IRMAA Surcharges in Railroad Retirmement

Transcript:

Learn five ways to avoid the potential Medicare tax coming your way in railroad retirement. Welcome everyone to another edition of the Highball Advisors Railroad Retirement Whiteboard. My name's John McNamara of Highball Advisors. And today, we're going to talk about taxes that might or might not be affecting you when it comes time to start your Medicare at 65. I'm talking about the IRMAA tax. So IRMAA is basically a tax on higher income railroaders in retirement. It was put in 2003 for everyone to help with the solvency of the Medicare program. So if you have higher means, basically it's means tested, you're going to pay more of a monthly subsidy for your Medicare.

So how's it calculated and how's it going to affect you, that type of thing? What they'll do is they'll look at two years on your modified adjusted gross income before 65. So at that age at 63, they're going to start looking at. And they'll look at it every two years going forward to determine the surcharges. So in this year, 2022, if you're single and you have $91,000 of income, there's going to be a surcharge, or if you're married, filing jointly, $182,000. Now, the surcharges, they can range from anywhere. So the lower tier is $80.40 a month for parts B and D of the Medicare. And it can go all the way up to a little over $486 a month for parts B and D. So that's kind of a big nut, a big tax hit on you. So you want to take a look at these things and plan some strategies possibly to avoid these taxes or at least minimize them. So let's have a look at some of these five ways that I've outlined that you can lessen it or make it more avoidable.

So, first of all, don't assume non-qualified accounts should be liquidated first. That's a great thing. So they're always talking about, oh, spend down your taxable accounts and then you go into your tax deferred, then your tax free, that kind of prorata strategy so to speak. However, depending upon where you are, this kind of bleeds into number two, is consider your Roth conversions. Because we said it doesn't happen till 63. And what's great about railroaders, you might retire early, great time to draw down those tax deferred accounts before possible IRMAA surcharges through Roth conversions. So go tax deferred first, leave the taxable accounts. Great way to move money into tax free and look to avoid those IRMAA surcharges. So take a look at that one. One and two are kind of combined. Another one is use your RMDs, required minimum distributions. Government wants their money on the tax deferred accounts. That's what I always say about the RMDs, government wants their money. So those will happen at 72. You'll have to be making RMDs. So if you're taking money out of tax deferred accounts, that's taxable income, drives your income up, possibly kicking in the IRMAA charges. So what you can do with the RMDs is you put that right into a charitable contribution. No hit on your income. So your income goes down, possibly avoiding IRMAA charges. So that's another strategy there.

Another one is don't over save in the pre-tax accounts. So that's something to think about. You always hear, "Hey, max out your 401(k)." And hey, as a fallback strategy, nothing wrong with that. But, what you could also be looking to do is say, "I'm going to save up all my 401(k) until the company match." You always want to take advantage of the company match. So max that to the company match. And then if you still have room after that, take a look at where you are and say, "Oh, maybe I should put this in a taxable account, the rest of this money," or even depending upon your income, you can even still put maybe some in a Roth. Or maybe your company offers a Roth 401(k). So that's another way. Because what we're trying to avoid is taking that money out of tax deferred later and kicking up the taxable income til we get the IRMAA charges. So that's something to think about.

And then finally, one last one here, is especially for those individuals, railroaders who have a lot of their wealth is tied up in their home, especially as you age, that could be one of your biggest assets, is you could look at a reverse mortgage. Not a specialist in a reverse mortgage. You could take a look at it. But theoretically, it's a great way to, "Hey, I can draw down some equity. That's not going to be taxable. It's not going to affect my taxable income. And then I cover a lot of expenses." Also a nice way to help maybe even possibly with long term care. So, like I said, it's complex. You have some fees associated with that. So you really got to break down and do the math on that.

So, I hope you found this helpful. These are my five strategies to help avoid those IRMAA taxes. Remember, I always say accumulating assets and retirement, that's great, but it's how you de-accumulate all your wealth, that's the really important part, just as important as accumulating. So reach out to me if you need any help with any of these issues. If you're nearing railroad retirement, reach out to me, go through the Boarding for Railroad Retirement process. This is the type of things we like to cover in that. Subscribe to my YouTube channel. Appreciate that. Share that with other railroaders. Really going gangbusters, good to see. Click on the notification bell to get the latest videos. And until next time, everyone, please stay safe, stay on track, and take care. So long, everybody. Bye.

 

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