Here's Why You Might Pay More for Medicare -- and How to Avoid It

Key Points

Medicare has a standard monthly premium for Part B.

Higher earners are assessed surcharges that can raise that cost substantially.

A few strategies could help you avoid paying more.

• The $23,760 Social Security bonus most retirees completely overlook ›

Medicare is often seen as a safety net that makes healthcare more affordable in retirement. But for many higher-income retirees, that assumption doesn't always hold true. Depending on your income, you could end up paying significantly more for Medicare than expected.

Medicare charges a standard monthly premium for Part B. But if you're a higher earner, you could end up facing surcharges on Part B known as income-related monthly adjustment amounts, or IRMAAs. They actually apply to Part D, too.

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IRMAAs, unfortunately, are no joke. At worst, they could add almost $500 a month to the cost of Part B and around $90 a month to the cost of Part D on top of your regular premiums. And because they're based on your income from two years prior, they're not always so easy to plan for.

A few strategic moves on your part, however, could help you avoid IRMAAs -- and keep your Medicare costs more manageable.

Withdraw from your savings carefully

IRMAAs are based on your modified adjusted gross income (MAGI) from two years prior. And traditional IRA and 401(k) distributions count toward that figure.

If you want to avoid IRMAAs, one of the smartest things you can do is limit annual withdrawals from your traditional retirement accounts. Instead of taking large, irregular distributions, consider spreading withdrawals more evenly over time so they're easy to track.

Do a Roth conversion

Withdrawals from a Roth IRA don't count as taxable income. They're therefore not part of your MAGI and won't push you into IRMAA territory.

If you have all of your retirement savings in a traditional retirement account, doing a Roth conversion could be smart. Eventually, traditional retirement plans will impose required minimum distributions (RMDs), at which point your strategy of timing withdrawals may no longer be applicable. If you move your savings into a Roth IRA, you won't have RMDs to worry about.

But time that conversion carefully. A single large conversion could push you into IRMAA territory if it happens right before you enroll in Medicare or while you're already enrolled.

Careful planning could go a long way

IRMAAs aren't always avoidable, especially if you have substantial income in retirement. But with the right approach, you can lower your chances of facing them -- or at least the worst of them.

Remember, IRMAAs are tiered, and the higher your MAGI, the more they can add to your Medicare costs. So even if you don't manage to avoid them completely, bumping yourself into a lower IRMAA tier could still do your finances a world of good.

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