Do you know what IRMAA is? Neither did I until I did a search engine search to find out more after I heard about it from a chain of events that led me to it like bread crumbs leading me to the ginger bread house run by a hungry evil tax witch.
An Unexpected Journey
I watch a great deal of YouTube videos that are geared toward investing, personal finance, treasury operation and similar. I actually was researching annuities after a friend recently asked me about it here and came across the YouTube video below from watching a whole bunch of other videos along the way.
After watching that video, I saw this one that opened my eyes to a few things I wasn’t considering.
The second video goes into explaining why you shouldn’t simply have all your money in one bucket like a 401k or an IRA or even a ROTH IRA because there are tax implications down the line when you retire and start withdrawing money. And why does it matter? Well, that brings us full circle to IRMAA.
What is IRMAA?
IRMAA is short for Income Related Monthly Adjusted Amount which is a nice way of saying “tax the rich” for medicare. You can read the details at this link but here is a nice table courtesy of the link that explains it in a nutshell. My wife and I will likely fall into row 3 thru 5 when we retire given our current portfolios and income projections over the next 15 to 18 years and the sudden rise of inflation. But why pay $559 when we can pay $174 like everyone else that didn’t plan accordingly?
| Part B IRMAA premiums (2024) | ||
|---|---|---|
| Individual | Joint | Monthly Premium |
| $103,000 or less | $206,000 or less | $174.70 (no IRMAA) |
| > $103,000 – $129,000 | > $206,000 – $258,000 | $244.60 |
| > $129,000 – $161,000 | > $258,000 -$322,000 | $349.40 |
| > $161,000 – $193,000 | > $322,000 – $386,000 | $454.20 |
| > $193,000 – $500,000 | > $386,000 – $750,000 | $559.00 |
| Greater than $500,000 | Greater than $750,000 | $594.00 |
Essentially, the higher the income tax bracket you are in retirement the higher you will pay for medicare and the higher your social security income will be taxed.
“Tax the rich” Avoidance
Of course there are ways to avoid having a high income in retirement and having to pay higher taxes and subsidize everyone else which leads to mechanisms for doing that and can you guess which one method exists to lower your taxable income in retirement? If you guessed annuities/life insurance then you have been following along and paying attention.
The Books
To make a long post short, I’ve ordered the following books to learn more about this strategy and how to apply it to my situation. Here are the books:
- The New Retirement Savings Time Bomb by Ed Slott.
- The Power of Zero by David McKnight
- Look Before You LIRP (Life Insurance Retirement Plan) by David McKnight
I will write reviews for each one after I read them and it may take a while given my current work load but I am eager to get started so hopefully it won’t be too long.