Key Takeaways:
-
Two-year lookback: Your income from two years ago dictates your current Medicare premiums.
-
Qualifying events: You can appeal high-income penalties if you experience a valid work reduction.
-
Protect your wealth: A member of the team can research options to prevent costly medical bills.
Are you approaching Medicare eligibility and wondering how your income will affect your costs? If you are a high-income earner, you need to plan carefully to avoid unexpected penalties. Medicare has specific rules that can significantly increase your monthly premiums if you are not prepared. Fortunately, understanding these rules in advance can help you protect your retirement savings.
If you prefer to watch, you can view the full video here:
Understanding the IRMAA Medicare Penalty
Medicare uses something called the Income-Related Monthly Adjustment Amount, or IRMAA. This is a high-income penalty that applies to both your Medicare Part B and Part D premiums. The unique thing about these income penalties is the two-year lookback rule. Your 2028 Medicare premiums will actually be based on your 2026 income.
If you file taxes as a single person, the threshold to pay more is around $110,000 a year. If you file jointly as a couple, the threshold is around $220,000. Those who are married but file separately face the same $110,000 threshold, but the penalties increase much faster. It is always a good idea to discuss these thresholds with your CPA.
Can You Appeal Your IRMAA Penalty?
Sometimes your income drops unexpectedly. If your income has decreased, you can ask Medicare to reduce what you are paying for your coverage. However, you must have a valid qualifying event to win an appeal. The most common qualifying events are a work reduction or a complete work stoppage.
Certain financial moves will not qualify for an appeal. For example, taking distributions from a 401k, selling a home, or doing a Roth IRA conversion are not usually accepted as reasons to reduce your penalty. It is important to understand the Medicare implications before creating a sudden income spike.
Traveling, Moving, and Your Medicare Coverage
Many high-income individuals plan to travel or split their time between multiple states. If you plan on moving, you should know that different states have different rules. When you move to a new state, it is very easy to change your Medicare Part D or Medicare Advantage plan. However, you are not guaranteed the right to change your Medicare Supplement plan.
Traveling also impacts your choices. Original Medicare covers you very well across all 50 states. Medicare Advantage plans can be tricky to use if you need non-emergency care outside your local area. If you travel internationally, be aware that neither Original Medicare nor Medicare Advantage offers great international coverage.
Coordinating Your Doctors and Health Savings Accounts
High-income earners often use unique healthcare providers like concierge or functional medicine doctors. These providers typically do not take normal health insurance. Surprisingly, some Medicare plans cover specialized tests better than others. You must carefully evaluate how your choice of doctor impacts your Medicare decision.
Additionally, many individuals have a Health Savings Account, which offers fantastic tax benefits. Once you enroll in Medicare, there are strict rules regarding HSA contributions. You will need to stop your contributions at the correct time to avoid tax penalties.
Protecting Your Wealth from Big Medical Bills
Choosing the wrong Medicare coverage can lead to catastrophic financial risks. One client chose a Medicare Advantage plan and later needed to see a specific out-of-network doctor. Because of Medicare’s guaranteed issue rules, he could not change his plan. He was forced to decide between seeing an in-network provider he did not want or paying over $200,000 out of his retirement savings.
When you have a high net worth, you need to think about these long-term implications. You do not need to figure this out alone. A member of the team can do the research for you to ensure you avoid costly mistakes. Protecting your money ultimately protects you and your family.
Frequently Asked Questions
What does Medicare look at to determine my IRMAA penalty? Medicare looks back at your income from two years ago to set your current premiums.
Can I appeal an IRMAA penalty if I sold a house? No, selling a home or taking a 401k distribution usually does not count as a qualifying event for an appeal.
Does Medicare cover long-term custodial care? No, Medicare does not cover long-term custodial care needs.
Secure Your Retirement Without the Guesswork
Navigating Medicare as a high-income earner does not have to be overwhelming. While the IRMAA penalties and enrollment rules can seem complex, having the right information ensures you will not be caught off guard by unexpected costs or limited doctor networks. By looking ahead and understanding how your current income impacts your future premiums, you can make strategic decisions that protect your hard-earned savings.
If you are ready to remove the guesswork from your Medicare transition, a member of our team is here to do the exact research for you. We will help you build a solid strategy so you can step into retirement with complete confidence and peace of mind.
