Transcript

[00:00:00] Intro: Welcome to Retirement Unlocked with Larry Heller, your life, Your Way, unlimited possibilities. Join us as we explore how tailored financial planning and investments can help you navigate life transitions with confidence. Let’s dive into this week’s episode.

[00:00:20] Bill Tucker: And welcome back to Retirement Unlocked with Larry Heller.

Many retirees assume that Medicare costs are standard across the board, but for higher income retirees. That’s not the case. Your premiums for Medicare Part B and Part D can increase significantly due to something called Irma. Income related monthly adjustment amounts. Today, Larry discusses how these increases are based on income from your two years prior, meaning the decisions you made in the past could be costing you today, and how without proper planning, retirees can unknowingly trigger.

[00:01:00] Higher premiums year after year. Larry, first, it’s great to see you. How are you my friend?

[00:01:09] Larry Heller: I’m doing great, bill. How are you?

[00:01:11] Bill Tucker: I’m doing fantastic. It, Steve, I, it’s a gorgeous. Beautiful, beautiful day. As we record this, the sun is out. I feel great. And Irma reminds me of like a girlfriend I might have dated once, but I think she was a lot nicer than the Irma we’re gonna talk about today.

[00:01:27] Larry Heller: I hope so.

[00:01:28] Bill Tucker: Holy smoke. Let’s start with, ’cause a lot of people do not know what Irma is as it affects everybody. You think they would. Let’s start with the simple, what is Irma?

[00:01:41] Larry Heller: Yeah. Like you, you mentioned. So what does Irma stands for? Income related monthly adjust Spent amount. Wow. So’s a

[00:01:49] Bill Tucker: mouthful there, buddy.

[00:01:50] Larry Heller: There’s a mouthful there. So, um, so yeah, so when you, when you go on Medicare. And you go to pay your Medicare premium, [00:02:00] they will charge you a surplus based upon your income. It’s an additional surcharge that’s added to your Medicare Part B, which is your medical insurance. Mm-hmm. And your Medicare Part D, which is your prescription drug coverage.

[00:02:18] Bill Tucker: Wow.

[00:02:19] Larry Heller: And. So many people have no idea that this surcharge is coming and no matter what, we have clients, they have a lot of money and earn a lot of money, and they get so annoyed that they have to pay this extra little surcharge. So it applies to different. Individuals, depending upon their income and certain thresholds.

So we want to kind of see what we can do about that. Now, we don’t wanna let Irma solely control your planning, your cash flow, your investment decisions, but there are things that you can do to possibly. [00:03:00]lower your Irma.

[00:03:03] Bill Tucker: Oh, I like that idea. But before we get into that, Larry, let’s, let’s first get into how Irma is calculated.

How, how, how’s that set up for us?

[00:03:11] Larry Heller: Okay. So first they look at your tax return. Two years prior. So if you’re gonna go on Medicare age 65, they’re gonna look at your income at 63 oh, and they’re looking at your wages, what you’ve withdrawn from your IRA. If you’ve withdrawn anything. Capital gains rental income, all your income, but they also look at something else.

’cause we’ve had people say, well, I’ll just buy all muni bonds. I won’t have any, Ima uh, doesn’t work that way. Tax exempt interest is included in your Irma calculation as well. Oh. So that, that’s how they do that. Looking at your, so it’s, if you’re 2026, they’re gonna look at your 2024 income to determine your Irma.

But here’s a tip for you. [00:04:00] Okay, please. There is a what? Yes.

[00:04:03] Bill Tucker: Yes. Please give us that tip, Larry.

[00:04:05] Larry Heller: Okay. So there is a form that you can get called SSA 44 from the Social Security Administration to report a life changing event. So what is a life changing event? Retirement, marriage, divorce, death of a spouse. So in 2026, if you’re now retired, you could fill this form out and you can now put in what your income is going to be rather than what your income was in 2024.

So, uh, so make sure that you kind of look at that and figure out if it, if it is gonna be less that you file that form to get your Imma reduced.

[00:04:47] Bill Tucker: Yeah, God forbid you suffer some sort of tragedy that would make you eligible for this kind of thing. But if you have suffered that tragedy, you, you should be aware that there is a way that you can, uh, you can use the system to [00:05:00] your advantage.

But Larry,

[00:05:02] Larry Heller: it’s not even just a tragedy bill, it’s just, just if you’re retiring and you’re stopping working, so now you don’t, you no longer have any salary, so there’s a good chance your income, income go down, especially if you’re not. Taking your acquired minimum distributions from your retirement account yet?

[00:05:17] Bill Tucker: Oh, okay. So I, I, in, when I was 63, I stopped working. I hadn’t started taking any income from any of my retirement plans.

[00:05:28] Larry Heller: Right. So at 65, that would’ve been two years ago. So you would’ve been okay. But if you had stopped working in 64 and started Medicare in 65. They’d be using your income from when you were 63, so that’s when you want to kinda file this form to I gotcha.

You know, 2, 2, 2 years ago.

[00:05:48] Bill Tucker: Okay. Let’s, let’s, let’s, can you, can you lay this out for us and help us understand these Irma brackets? How are they set up and, and what are the thresholds?

[00:05:56] Larry Heller: Yeah. So I’m gonna just share a screen with you right now. Yeah. To kind of look at [00:06:00] the different thresholds here. Um,

[00:06:01] Bill Tucker: very

[00:06:02] Larry Heller: nice, sir.

And, you know, it depends upon your, depends upon your income. So, uh. So if when you, when you do start your, um, right now in 2026, your Medicare Part B premium is $202 and 90 cents. If you’re married, it’s 218,000 and less. Once you hit $218,001, there’s a surcharge. There’s $81 and 20 cents surcharge. For Part B and a $14 and 50 cents surcharge for for Part D.

Now let’s jump all the way down, and this is where the numbers start to increase. If you’re making more than half a million dollars and you’re single or seven 50 and you’re married, now you’re surcharge is an extra $487. And $91 for Part D. So, so the, your total premium is [00:07:00] $689, $91 for part D plus whatever the Part D premium is gonna be.

So you can see that can add up. So if, if it’s a roughly a 500 and. $60 increase, you’re over a $6,000 higher premium at that income level. And so a again, you know, so now they’re gonna kind of look at, look at this. So if you have one year we’ll talk about, talk about your. Differences. So it’s a big difference if you’re gonna have a large income in one year, rather than spreading it out over two or three years, which could impact your IRI.

[00:07:37] Bill Tucker: Wow. Uh, first of all, for those of you who are listening to this podcast right now, and you couldn’t take, you know you’re driving and you couldn’t take a chance to look at the brackets, be assured, the chart that Larry just shared is in the show notes, and you can go back and reference that bracket a little later, see the numbers and get a much clearer idea of.

Where those brackets fall and where you, as a matter of fact, fall in the [00:08:00] middle of them. Uh, it’s funny, Larry, I told you I didn’t know about Irma until I needed to know about Irma, which was, you know, and I, and I, I was shocked that more people don’t know about this because. Can make a massive difference in terms of retirement planning, can’t it?

[00:08:21] Larry Heller: Well, I wouldn’t say ma, you know, massive difference. But it, you know, like I just said, it could be an extra $6,000 a year of premiums that nobody, that people don’t wanna, yeah. Wanna pay. They’re already paying a, uh, enough in the. Um, the Medicare premiums and maybe even additional healthcare costs. So, uh, so no one likes to have the surprises when they get their first premium payment and they think it’s gonna be $202 and it’s $689.

So that’s a

[00:08:52] Bill Tucker: little bit of a difference.

[00:08:53] Larry Heller: It’s a, a little bit, a little bit of difference,

[00:08:57] Bill Tucker: but, you know, it’s, it’s, it’s, it’s, you know. [00:09:00] It’s one of those, well, at least you know it’s triggered by good things. It

[00:09:04] Larry Heller: is. But again, it’s one of those things, if you can plan for it and possibly reduce it, um, why not? So, uh, yeah.

[00:09:12] Bill Tucker: So how do we do this? I mean, how do we, how do we, how do we make things? Better, as

[00:09:17] Larry Heller: it were. Right? So you wanna kind of start thinking about things earlier, earlier on, some of your investment decisions, your work, your withdrawal strategies, and your tax planning. And obviously taxes are a big part of this. I kind of look at this as just another tax.

So how can you do some of these type things? Because what’s gonna happen is you may have these lower premiums, and now what’s happened is, and this is not just for Irma purposes, it’s for tax planning purposes, you. If you’re born in 1960 or later, you don’t have to start withdrawing from your IRA until you’re 75.

Yeah. Even if you’re older than that, it’s 73. And if you let your IRA grow so high, your required minimum [00:10:00] distributions later on not only will kick you into a higher tax bracket, but as we looked at the chart, we’ll kick you into a. Higher surcharge. So you want to kind of really start doing some planning.

Does it make sense to take some money out of your IRA earlier when you’re in lower tax brackets, goes against what a lot of accountants are gonna think. But you want to kind of plan not just what your current taxes are gonna be, but what your future taxes are gonna be. So, uh, so you want to kind of, you know, think ahead of that.

’cause that can trigger a higher, Imma a large IRA withdrawal will, will trigger that. Um, and one of the things that we do when we’re doing planning now, we’re doing a lot of Roth conversions. Mm-hmm. And I’ve, I’ve talked to people and that’ve done Roth conversions and after they’ve done it the next year, all of a sudden now, two years later.

They’re getting higher, Irma, because they did this Roth conversion and no one told them that if they did this Roth conversion, although it may be good from tax purposes, it’s gonna kick ’em up into a [00:11:00] higher Irma, um, or. Selling a highly appreciated asset, um, uh, may trigger capital gains, which is gonna add to that.

So these are common triggers, and again, you don’t wanna just do things to avoid the Imma, you wanna make sound financial investment decisions and cashflow pending decisions, but you should know what some of these triggers are. If you know what some of these triggers are, you can do some planning.

[00:11:26] Bill Tucker: Well, that’s just what I was gonna ask you.

You’re talking about the triggers at the moment, but now let’s talk about some of the strategies that you can help your clients manage their Irma. Talk about some of that.

[00:11:39] Larry Heller: Yeah, so like I mentioned before, if it’s possible, you may want to, you know, not do a large. Bike in a single year of income.

So if you’re thinking, and we’ve actually had some clients and they were doingl this and they wanted to reduce some of their exposure in certain things, and they’ve done it the last day of the year and the first day of the next year. Um, or if, [00:12:00] if they’re getting some income, maybe they had some deferred compensation that they’re owed, and instead of taking it all in one year, they’ve taken it over three of.

Four years. So we have some, you know, doctors that work for some bigger hospitals and they were able to do some deferred comp, and that’s one of the planning that we’re, we’re thinking about doing. So those are some of the proactive income planning that you could do, um, prior to even retiring. So you start thinking about this later on.

[00:12:29] Bill Tucker: No, it makes a lot of sense. What about Roth conversion? Sorry, I, if, if, if you’re gonna convert, is there a better time to do it than others? Because it is gonna lead to increased income.

[00:12:40] Larry Heller: Yeah, so I mean, if you’re lucky enough that you’re able to retire before 65 and going on Medicare, um, and you have these years where there is low income and you haven’t taken your social security, um, so now you have no social security, you’re not working, you retired.

Maybe your income is really, really [00:13:00] low at that point. Fill up some other buckets there. So now you do some Roth conversions and you’re lowering your future require minimum distribution. Hmm. So by doing this Roth conversion possibly can lower your Irma later up. So by filling in some lower tax brackets without triggering the Irma later is one of the things that you want to, is helpful when you’re doing a Roth conversion.

Again, if you’re already at 65, it still may make sense to do a Roth conversion, but now you. You may be receiving social security, maybe not, but now you are on, possibly on Medicare. So, uh, it could trigger the, the, IM a surplus.

[00:13:42] Bill Tucker: What about RMDs? I mean, they’re required minimum distribution, right? So how do you, how do you manage the required income as it.

[00:13:50] Larry Heller: Right. So like, like we, like we talked about a few minutes ago, you may not wanna wait until you’re 73 or 75. In the old days, you would take your taxable income [00:14:00] first and then you’d take your qualified money later. Yep. ’cause that could grow tax deferred for you, and you still may wanna do that. So you have to look at all these numbers and luckily we have all these.

Computer calculations that can help us with this. Um, and to show you what tax bracket you’re gonna be in, what Irma numbers you’re gonna have, so you may want to convert, do some Roth conversions earlier on. The other thing to think about is when you’re at RMD Age, you may wanna do some what’s called qualified charitable distributions, qds.

So instead of taking money outta your. IRA, which would be taxable, and maybe you’re charity inclined and you’re given charitable deductions out of taxable income. You should now possibly do a QCD out of your IRA. What are you doing here? Well, you’re giving to the charity, but now you’re not recording taxable income because the money’s going to the charity, reducing the amount of your required minimum distribution.

[00:15:00] Reducing amount of the income and therefore could be reducing the amount of the Irma su su um, surplus.

[00:15:06] Bill Tucker: Yeah. Yeah. And as I understand it, QDS cannot, if I’m gonna do a QCD, I can’t take possession of the money and then give it to a charity. Correct. Right. I to arrange for it to go directly to the charity receiving it.

Correct.

[00:15:19] Larry Heller: Correct. And the other thing also is, you know, again, depending upon what you, where you are, if you do have a lodge. One time income, um, event in one year, you could do what’s called a donor-advised fund. So, um. Um, and, and we’re gonna do a separate podcast. We’ve done this before on the charity side, but now you can put a large amount, um, a as one year deduction and spread it out over charities over a year.

But you can use this deduction to possibly offset a one time income. So that’s another little strategy there, um, to, to hopefully minimize the income and minimize taxes. And I surpluses.

[00:15:58] Bill Tucker: What about capital gains? I mean, [00:16:00] everybody’s got them. If they’ve got stock portfolios, they’ve, they’re gonna have capital gains in there.

Yeah. How do, how do we, how do we manage those?

[00:16:05] Larry Heller: Uh, uh, again, you don’t wanna have those decisions, investment decisions, solely from your imer control, but again, true, if you can spread that, uh, amongst, um, uh, year, you know, uh, multiple years that I’ll help. If you can take some of the gains in years that you may have some deductions to, to, uh, some losses to offset.

So there’s a little bit of planning that can come involved with, uh, with that. But so you, you, you wanna kind of have to look at creating a, a tax efficient withdrawal strategy.

[00:16:38] Bill Tucker: Mm-hmm.

[00:16:38] Larry Heller: So a lot of planning goes into this and, and how to minimize your taxes when you’re retiring because when you’re doing that.

And, and knowing which account to withdraw from your taxable account, your, um, tax deferred four oh KIRA or, or possibly if you had a Roth. Which accounts do you, does it make sense to withdraw from to minimize your taxes [00:17:00] and then also helping you out on minimizing your Imma surplus?

[00:17:05] Bill Tucker: Great. Uh, what about any long-term?

Planning pitfalls that we should be aware of.

[00:17:09] Larry Heller: Yeah. So, uh, again, so, you know, Irma does create these planning windows, um, you know, anywhere between age 60 and 65, you know, are really critical years to, to planning on this. We had a client come in, oh, about a year ago, and he was already in his seventies. Um, and he’s, he now is paying Irma and ’cause he’s, he’s got a, a large amount of money in his IRA and we looked at, there was multiple years that he had no income, that he could have been doing Roth conversions, which would’ve really have helped him out on the taxes and also helped him out on bringing down his Irma surplus.

But it was too, it’s already too late. So don’t miss those opportunities later on when you’re already starting to pay some of these. Costs, um, start thinking about it and p [00:18:00] positioning yourself for more efficient withdrawals later on.

[00:18:04] Bill Tucker: No, it makes, it makes total sense. Can you give us some, uh, key takeaways from this episode we should be aware of?

[00:18:11] Larry Heller: Yeah. So, you know, Irma is. It is a hidden cost, but it is, it could be controllable depending upon your, your scenario. Um, sometimes a small income increase. So if you’re looking at this, like I mentioned when I showed you the chart, a dollar over is gonna kick you into the next bracket. So if you’re gonna be close, you want to do some type of, uh, you know, planning the year before.

[00:18:34] Bill Tucker: Yeah.

[00:18:35] Larry Heller: But in addition to that, you want to plan. Years in advance, if if, if possible. So, so coordinating that, knowing that year by year that, that, that it exists. And if you can possibly keep yourself in a little bit lower bracket, that’s great. And then coordinating your tax strategy along with your health, healthcare, and do it as early as possible, which will give you the most flexibility.

[00:18:59] Bill Tucker: Makes [00:19:00] complete sense before we get outta here. Larry is, are there any real life scenarios that you could share with us, uh, that might help people understand it better?

[00:19:08] Larry Heller: Right, well, I just told you one of ’em a few minutes ago that waiting, you know, waiting too long, waiting till your

[00:19:14] Bill Tucker: seventies too late.

[00:19:15] Larry Heller: It is too, too late.

And doing late Roth con, you know, Roth conversion, but not even in your seventies. If you wait until you’re over 65 and you’re doing these, these Roth conversions, it could trick trigger higher taxes. Yeah. And could trigger some, some supplements to, to avoid. So, and also the hidden cost of selling a, you know, selling a pro, you know, a property.

Now you can’t always con, you know, can’t always control it, but we did have a client that was selling a, selling a property. Um, and they, they were, you know, eight gonna be kind of age 62 to age 63. Um, and one of the things that we looked at is, can we close on the deal before the end of the year? For a lot of different reasons, but also for, for tax purposes, it would help, [00:20:00] would help that.

Sure. So looking at where you are income wise versus where you’re gonna be, um, um, some of these capital gains. So could, you know, could it could significantly increase your Medicare premiums two years, two years down the road?

[00:20:16] Bill Tucker: Yeah, it could. I mean. There is an upside to this. I guess from looking at it from my perspective, if, if your increased premiums are there, it’s because you’ve had increased income.

So if you gotta look for a silver lining in anything, maybe you, maybe that is one place that you should look.

[00:20:31] Larry Heller: Yeah, you can look at it that way then you, but if, but sometimes it may not be, it may be just, it was one year when you could have spread it out, so it’s not like. If the silver lining is there when you could have spread it out over, over more years, or you could have reduced your income by doing some of these strategies.

Yep. So you’re still getting the same amount of money, but you reduced your income, therefore reducing your taxes and your I, so, so it’s not just, oh, I’m making more [00:21:00] money, I can pay for it. Yeah. But you could have been making the same money. Just paying less in taxes and less in premium supplements.

[00:21:07] Bill Tucker: And thus, the value of working with financial planners such as yourself right then and there

[00:21:12] Larry Heller: e Exactly.

Exactly. So, you know, don’t let you know. Final really word is don’t let the increase in Irma cost, drive all your financial decisions, but be aware of them and how to navigate where possible and be able to still, um, have good financial outcomes and minimize where you can. Some of these Irma surpluses.

[00:21:34] Bill Tucker: Excellent advice, good advice. Take it to heart. And for those of you listening, if today’s episode helped you better understand how Irma can impact your Medicare premiums and how proactive planning can help you avoid unnecessary costs, please like, subscribe and share this podcast with someone you think could benefit.

And if you are approaching Medicare age and want to discuss your retirement planning strategy, schedule a [00:22:00] complimentary. Consultation using the link in the description for a 20 minute call. I wanna underscore that complimentary. It’s free, it costs you nothing.

Now, please note that Heller Wealth Management is now part of Savant Wealth Management. Savant is a registered investment advisor. This content is provided for informational and educational purposes, ly, and should not be construed as personalized investment advice. Thank you. We’ll catch you next time.