• Medicare IRMAA Brackets 2025
• 9 Ways to Avoid Medicare IRMAA
• What Is a Good Turnover Ratio?
• Mutual Funds With High-Turnover
  • Vanguard Global Equity Fund (VHGEX)

3 Ways to Reduce Medicare IRMAA (Now and in the Future!)

Taylor Schulte: Welcome to the Stay Wealthy Podcast.

I’m your host, Taylor Schulte, and today I’m talking about Medicare IRMAA.

Specifically, I’m sharing information on the freshly updated IRMAA brackets and addressing a couple of common questions I receive from retirement savers.

I’m also sharing three actionable things that you can do to mitigate or avoid Medicare IRMAA surcharges.

These three things I’m discussing are most beneficial when done proactively, and in some cases, well ahead of applying for Medicare at age 65.

So whether you’re 10-plus years away from Medicare or currently on it, this episode will help you learn how to plan ahead and keep more of your hard-earned retirement dollars.

To view the resources mentioned in today’s episode, including my recently updated guide on navigating the Medicare IRMAA tax brackets, just head over to youstaywealthy.com/236.

Medicare IRMAA is a surcharge that high-earning Medicare members are hit with each month.

For those that have income above a certain level, IRMAA increases their Medicare Part B and Part D standard monthly premiums.

IRMAA stands for income-related monthly adjustment amount, and it’s not just based on your taxable ordinary income.

It’s based on what’s known as your modified adjusted gross income, or MAGI for short.

What makes this pesky Medicare surcharge so unique is that the amount you pay this year is based on your income from two years ago.

In other words, the 2025 IRMAA brackets are based on your MAGI from 2023.

If you’ve spent any amount of time learning about IRMAA, you know it’s a confusing topic.

So to help retirement savers cut through the confusion and understand this important topic, I’ve been publishing and updating one of the most in-depth guides on the internet on Medicare IRMAA for the past several years, and I recently just updated it with the 2025 brackets.

And no, it’s not one of those, give me your email address and I’ll send you this free guide sort of thing.

It’s live, it’s public, it’s free, and it’s freshly updated on my website for 2025.

If you’re interested in checking it out and reviewing the updated IRMAA brackets, I’ll share a link in the episode description in your podcast app, as well as the show notes for today’s episode.

But in short, for current Medicare members, if you were a single filer in 2023, and your modified adjusted gross income was above $106,000, you will be paying an IRMAA surcharge in 2025.

If you filed married filing jointly in 2023, and your MAGI was above $212,000, you will also be hit with IRMAA this year.

Now, exactly how much of a surcharge depends on your MAGI in 2023 and your tax filing status, but the new IRMAA brackets for this year can increase Medicare Part B premiums by as much as $443.90 per month, and can increase your Medicare Part D premiums by as much as $85 per month.

Specifically, there are five different income thresholds, each with a different premium increase.

So if you want to see where you fall and what the surcharge is, just head over to the show notes or the episode description in your podcast app and review the updated brackets in the IRMAA article.

By the way, even if you are not subject to IRMAA, if you’re currently on Medicare, your standard Medicare Part B premium still increased by about 6% in 2025.

You’re likely already aware of this increase, but I’m sharing it for everyone to hear, because it highlights that medical costs often exceed the inflation rate and reinforces why retirees should consider using a higher rate of inflation for medical expenses in their retirement plan assumptions.

If you’re not sure what to use, a typical rule of thumb in the planning world is to use a 6% inflation rate for medical expenses as a baseline, knowing that you can always adjust the assumption up or down in different what-if scenarios to test different outcomes.

Now, before we get into how to avoid or reduce IRMAA, everyone’s favorite topic, I want to address two quick things.

First, one very common question I get is, Taylor, if my 2027 IRMAA is going to be based on my MAGI in 2025, and we don’t know what the 2027 IRMAA brackets will be until late 2026, how am I supposed to make informed tax planning decisions this year?

How am I supposed to figure out how much of a Roth conversion I should do this year if my goal is to avoid IRMAA in two years?

Unfortunately, to handle this unknown, you’ll need to conservatively estimate the 2027 IRMAA brackets.

And I say conservatively because just one dollar over the IRMAA threshold will trigger this surcharge.

On a positive note, in 2020, the Medicare Board of Trustees did provide us with a framework for estimating future IRMAA brackets when they announced their projected IRMAA adjustments through 2028.

The adjustments implied a 6.2% inflation rate for Part B and 6.58% for Part D.

Using this information, you can begin to estimate future IRMAA tax brackets.

In my previously referenced IRMAA Guide that’s linked in the show notes, I share an example of projected 2026 IRMAA brackets, which will give you a starting point for projecting 2027 and 2028.

The second thing to address and acknowledge with you today is that Medicare IRMAA surcharges are not going to put your retirement plan in jeopardy, or at least they shouldn’t.

IRMAA receives a lot of negative attention and criticism from retirees, but in my experience, it’s not because a few extra hundred dollars per month is threatening the success of their retirement plan.

It’s because they were caught off guard and surprised by this confusing phantom tax bill.

It doesn’t matter if you have a $500,000 nest egg or a $10 million nest egg, nobody likes surprises, especially in the form of extra taxes or hidden fees.

Knowing that IRMAA exists and understanding what triggers IRMAA will simply help you plan ahead, set your expectations accordingly, and avoid getting blindsided by this surcharge.

Similarly, my goal in sharing how to avoid or mitigate IRMAA is not to help you fix a failing retirement plan, but to help you keep more of your hard earned money and avoid paying unnecessary expenses due to poor planning.

Not all that different than implementing strategies to lower our tax bill.

Most of us are willing to pay our fair share of taxes, we just don’t want to leave the IRS a tip.

Leaving the IRS a tip each year likely won’t put your plan in jeopardy, but it’s typically not the desired outcome for most retirement savers.

Even if you’re 10-plus years away from applying for Medicare, the decisions you make in the near term can have an impact on your future healthcare costs.

And while IRMAA surcharges likely won’t force you to go back to work, most retirement savers would prefer to avoid additional costs and taxes if they can.

On that note, let’s now jump into the three things that you can do to reduce or even eliminate Medicare IRMAA.

Whether you’re already on Medicare or still years away from applying, knowing what these three things are and beginning to take action today can help you avoid future surprises and potentially help you keep more of your hard earned money.

So number one, choose tax-efficient investments.

As a refresher, if we want to reduce IRMAA, we have to reduce our modified adjusted gross income or MAGI, along with traditional W2 or 1099 wages, income from capital gains, dividends and interest, among many other types of income, are included in your MAGI calculation.

Since brokerage accounts, i.e. non-retirement accounts, since brokerage accounts incur capital gains, dividends and interest, it would be wise to choose investments that mitigate those types of taxes if you want to keep your MAGI down.

And keep in mind, depending on your situation, it might take a few years to get your portfolio properly positioned and invested in a tax-efficient manner.

It might not be wise to sell everything you own tomorrow, pay fees and taxes, and rebalance into a more tax-friendly portfolio.

So even if Medicare is 5 or 10 years away, you might still begin taking action, stitching a plan together to reallocate into more tax-smart investments that still align with your long-term goals.

With that in mind, here are a few things to take into consideration when reviewing your investments through this lens.

First, consider avoiding high-turnover mutual funds.

Mutual funds are pooled investment funds.

As a result, an actively managed mutual fund that’s frequently buying and selling securities will often create unnecessary capital gains that are passed down to all investors in the fund.

These are known as high turnover funds, and due to the tax structure of a mutual fund, even if you personally buy and hold the fund and never sell it, you can still end up with a large capital gains tax bill at the end of each year.

Choosing low turnover passive index funds instead can give you more control over capital gains realization and in turn, reduce or avoid IRMAA in the future.

Also, since most highly active funds underperform broad based market indexes over long periods of time, you could see higher investment returns as well by taking action here.

The good news is that the turnover of a mutual fund is really easy to find.

Just head over to a site like morningstar.com, plug in your fund’s ticker symbol, and you’ll immediately see the turnover ratio in the summary at the top of the page.

And by the way, just because you own a fund from a company that prides itself on low cost investing, like Vanguard, does not mean that you can assume your fund is low turnover.

For example, the Vanguard Global Equity Fund, VHGEX, has had an annual average turnover ratio of 47% over the last 10 years.

In other words, on average, at the end of every 12 month time period, almost half of the fund’s underlying securities have been swapped for something else.

Almost half of the stocks owned in this fund have been sold for a gain or a loss, and another stock has been repurchased at the end of every 12 month time period.

As a comparison, the Vanguard Total Stock Market Fund, VTSAX, which is an index mutual fund and not actively traded, has a turnover ratio of 2% as of this recording.

It’s also worth mentioning that turnover exists outside of mutual funds as well.

If your non-retirement dollars, your taxable brokerage account dollars are invested in a separately managed account, the managers running those strategies, they have discretion over when securities are bought and sold.

In other words, they are not making buy and sale decisions based on your personal tax situation.

They’re making them in an effort to match their strategies, investment policy and or prospectus.

And it’s not uncommon for these strategies to be actively buying and selling securities in your investment account, causing high turnover and unwanted capital gains tax bills.

If you’re paying for investment management services and you look at your investment statement, and instead of seeing 5 to 10 fund ticker symbols, you see hundreds or even thousands of individual securities, you are likely invested in a separately managed account of some kind.

And if so, it’s worth asking your advisor about the turnover ratio of the strategy that you’re invested in.

So to target tax-efficient investments, you’ll first want to avoid high-turnover funds or high-turnover strategies.

Next, while you’re evaluating the different funds you own in your brokerage accounts, it would also be smart to uncover any high dividend investments that you have that are causing unwanted taxes.

While a fund paying a high dividend sounds nice, along with spiking your tax bill, dividend-focused investments are typically more expensive to own and historically have underperformed broad-based indexes like the S&P 500 over long periods of time.

I discussed this in a lot more detail in my very popular dividend investing series last year if you want to learn more.

Just know that a well-constructed portfolio will naturally pay some dividends, so the goal is not to necessarily eliminate all dividends, but to avoid products that are unnecessarily targeting high dividend yields.

Lastly, since it would be nearly impossible to avoid all dividends, consider implementing an asset location strategy to further mitigate your modified adjusted gross income.

Not asset allocation, but asset location.

For example, if you have a mix of taxable brokerage accounts and tax advantage retirement accounts, consider placing your bonds or bond funds that generate regular taxable income in those tax advantage retirement accounts like traditional IRAs and traditional 401Ks.

Broad-based stocks and funds, on the other hand, like the Vanguard Total Market Fund I referenced earlier, often fit better in taxable brokerage accounts given their low turnover and low dividend.

And investments with the highest future return potential, i.e. small-cap value or emerging market stocks, in a perfect world would be owned in a tax-free Roth IRA, allowing them to grow significantly without any tax burden now or in the future.

The first thing you can do to reduce or avoid IRMAA is to choose tax-efficient investments.

The second thing you can do that seems to get a lot more attention than tax-efficient investing is Roth conversions.

As a refresher, a Roth conversion is the process of withdrawing money from your traditional IRA, paying taxes on the withdrawal, and then immediately transferring the withdrawn dollars to a tax-free Roth IRA.

Since you’re withdrawing money from a traditional IRA, doing proactive multi-year Roth conversions will reduce the balance of your pre-tax retirement accounts.

As a result, this will reduce or in some cases eliminate your taxable required minimum distributions or RMDs that begin at age 73 or 75.

You’re still paying the taxes on these pre-tax retirement savings, you’re just paying them on your terms, when it’s most opportune for you and your long-term plan, instead of waiting for the IRS to tell you when and how much.

You can do Roth conversions at any time and at any age, but the best time to do Roth conversions, or the most popular time, is typically in your gap years.

Your gap years begin the date you retire and end when your RMDs start, either age 73 or 75, depending on your date of birth.

For most people, income is the lowest during this period of time, allowing them to get money out of their traditional IRAs at a low or favorable tax rate through these Roth conversions.

Since your gap years can extend all the way until age 75, it is possible that doing multi-year Roth conversions will actually trigger IRMAA surcharges, not eliminate them.

You’ll have to crunch the numbers, but in some cases, it can actually make sense to intentionally spike your MAGI and accept IRMAA surcharges for a short period of time in order to avoid IRMAA surcharges for a long period of time.

In other words, accept some short-term pain to achieve a long-term benefit.

Because typically, once your RMDs begin at age 73 or 75, your hands are pretty tied with respect to managing the taxable income from this bucket of money.

So, use those gap years wisely to proactively plan and set your future self up for success.

The last thing to share with you today that can help you reduce or avoid IRMAA is charitable giving.

However, and this is very important, what many people don’t realize is that making a donation to a qualified charitable organization, either with cash or securities, will not reduce your MAGI.

I’ll say that again, donating to a qualified charitable organization, either with cash or securities will not reduce your MAGI.

And that’s because charitable deductions fall below the line for adjusted gross income on your tax return.

In other words, charitable deductions can reduce your current year tax bill, but they don’t reduce your adjusted gross income or AGI, which is part of the MAGI formula for calculating IRMAA.

Now, one way you can potentially reduce your MAGI through charitable giving is to donate appreciated assets either directly to a charity or to a donor advised fund.

Giving appreciated assets to a charity or donor-advised fund will help reduce capital gains that you would have otherwise have had to pay if you sold the asset.

You can also do qualified charitable distributions or QCDs beginning at age 70 and a half, which would reduce your MAGI.

A QCD is a direct donation from your traditional IRA to a qualified nonprofit organization.

QCDs are not taxed and they can be used to satisfy some or all of your RMDs.

For example, if you have a $100,000 RMD this year, you can withdraw and donate $100,000 from your traditional IRA to a qualified organization or organizations and avoid the $100,000 of taxable income from that RMD.

Required minimum distributions and the taxable income they create are a big reason why Medicare beneficiaries are subject to IRMAA and sometimes subject to IRMAA through most of their retirement.

Therefore, reducing your current and future RMDs through qualified charitable distributions in your 70s can reduce your MAGI and help you avoid this surcharge.

The caveat, of course, is that you will need to be charitably inclined for this to make sense because mathematically, you’ll probably end up with more money in your pocket at the end of the day if you skip QCDs and just pay the few extra $100 per month in IRMAA surcharges.

But if you hate IRMAA and you love giving to charity, then this would be something to consider.

Okay, I know I said I was going to give you three things today to reduce or avoid IRMAA, but I have a quick bonus one to share with you, and that is to remind you that you can file a formal request to have your IRMAA surcharge reconsidered due to what’s referred to as a life-changing event.

And in my experience, nearly every client we’ve helped file and appeal for has been successful.

A life-changing event could be retirement, marriage, divorce, death of your spouse, work stoppage or reduction, and a few others which are referenced on the appeal form SSA-44 that I’ll link to in today’s show notes.

But in short, if you received your IRMAA letter in the mail telling you that you’re hit with this surcharge this year, and you believe that you qualify for an appeal due to a qualifying life-changing event that caused this surcharge, you can fill out the form and file your appeal.

You just need to do it within 60 days of receiving your IRMAA letter.

And if you work with a financial advisor, this is something they can help you fill out, file and monitor.

Don’t feel like you need to tackle this on your own.

I regularly discuss the importance of not looking at your taxes in a vacuum or in a single year, and instead encourage people to consider the long-term impact when making tax planning decisions.

And Medicare IRMAA is one of the many examples of why that’s so important.

Making a decision that lowers your tax bill in the near term might feel good, it might feel like an easy win, but it could end up costing you in the long term.

Conversely, intentionally spiking your tax bill this year and intentionally triggering an IRMAA surcharge might appear like a bad decision to someone looking at your taxes in a vacuum.

But looking at the long-term picture, looking at your plan from a holistic point of view might have proven to you or your advisor that this decision, while painful in the short term, has some tremendous long-term benefits.

To dive deeper into these strategies discussed today, grab the research supporting this episode and view my recently updated IRMAA Guide with the latest 2025 tax brackets, just head over to youstaywealthy.com/236.

If you found today’s episode helpful, please share it with someone who might benefit or shoot me a message at podcast at youstaywealthy.com.

Thank you as always for listening and I’ll see you back here next week.

Episode Disclaimer: This podcast is for informational and entertainment purposes only and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services.