Medicare Supplement for High-Income Earners: IRMAA Planning & Tax Strategy Guide 2025

Strategic Medicare planning for affluent retirees - minimize IRMAA surcharges while maximizing healthcare coverage

💰 2025 IRMAA Income Thresholds & Surcharges

Income Level (MAGI) Part B Premium Part D Premium Total Monthly Annual Extra
≤ $103,000 (single) / ≤ $206,000 (married) $185 $0 $185 $0
$103,001-$129,000 / $206,001-$258,000 $259 $12.90 $272 $1,044
$129,001-$161,000 / $258,001-$322,000 $370 $33.30 $403 $2,616
$161,001-$193,000 / $322,001-$386,000 $481 $53.80 $535 $4,200
$193,001+ / $386,001+ $592 $74.20 $666 $5,772

Note: Based on tax return from 2 years prior. 2025 premiums based on 2023 tax returns.

Understanding IRMAA: The High-Income Medicare Tax

What is IRMAA?

Income-Related Monthly Adjustment Amount (IRMAA) is an additional premium that high-income Medicare beneficiaries pay on top of standard Part B and Part D premiums.

  • • Based on Modified Adjusted Gross Income (MAGI)
  • • Uses tax return from 2 years prior
  • • Affects both Part B and Part D premiums
  • • Can add up to $5,772+ annually

MAGI Calculation

MAGI for IRMAA includes most income sources:

  • • Adjusted Gross Income (AGI)
  • • Tax-exempt interest
  • • Foreign earned income exclusion
  • • Does NOT include Roth IRA withdrawals
  • • Does NOT include HSA distributions
  • • Does NOT include municipal bond interest

IRMAA's Impact on Medicare Supplement Planning

Cost Perspective

High-income earners already pay significant IRMAA surcharges. Premium differences between Medigap carriers become less significant relative to total Medicare costs.

Coverage Priority

Focus shifts from premium savings to comprehensive coverage and premium predictability. Plan G often makes more sense than Plan N for high earners.

Tax Strategy

Income management becomes critical. Strategies to reduce MAGI can save more than shopping for lower Medigap premiums.

IRMAA Reduction Strategies

Tax-Deferred Income Strategies

Reduce current MAGI while building retirement income

Before Age 65

  • • Maximize 401(k) contributions: $30,000 (2024) if 50+
  • • Contribute to traditional IRA: Reduce current AGI
  • • Consider deferred compensation: If available
  • • Harvest tax losses: Offset capital gains
  • • Delay Social Security: Credits worth 8% annually until 70

After Age 65

  • • Time Roth conversions: Convert in low-income years
  • • Manage RMD timing: Withdraw before RMDs begin
  • • Charitable giving strategies: QCDs from IRA
  • • Geographic arbitrage: No state tax states
  • • Business income timing: Defer consulting income

Advanced IRMAA Avoidance Strategies

Qualified Charitable Distributions (QCDs)

After age 70½, you can transfer up to $100,000 annually directly from your IRA to charity without counting as taxable income.

Benefits:

  • • Reduces AGI dollar-for-dollar
  • • Satisfies RMD requirements
  • • No itemization required

Example Impact:

  • • $25,000 QCD could drop you one IRMAA tier
  • • Annual savings: $1,044-$1,572
  • • Net cost of charity effectively reduced

Strategic Roth Conversion Timing

Convert traditional IRA funds to Roth IRA during years when your income is temporarily lower.

Best Times:

  • • Between retirement and Social Security
  • • Years with large business losses
  • • After market downturns

Long-term Benefit:

  • • Future Roth withdrawals don't count in MAGI
  • • Reduces future RMDs
  • • Tax-free growth potential

Income Smoothing Techniques

Spread income over multiple years to stay below IRMAA thresholds.

Methods:

  • • Installment sales of assets
  • • Deferred compensation elections
  • • Timing of stock option exercises

Example:

  • • Instead of $500K gain in one year
  • • Structure as $125K over 4 years
  • • Could avoid highest IRMAA tiers

Medicare Supplement Recommendations for High-Income Earners

Plan G: The Premium Choice for High Earners

Why Plan G makes the most sense when IRMAA is a factor

Advantages for High Earners

  • • Comprehensive coverage: Only the Part B deductible ($240/year)
  • • Predictable costs: No surprise copays or coinsurance
  • • Premium stability: Most stable rate increases
  • • Hassle-free healthcare: No claim management needed
  • • Global coverage: Emergency coverage abroad

Cost Perspective

Example for 65-year-old paying highest IRMAA:

  • • Medicare Part B + IRMAA: $592/month ($7,104/year)
  • • Plan G premium: ~$150/month ($1,800/year)
  • • Total healthcare premium: $742/month
  • • Plan G only adds 20% to total Medicare costs

For high earners, the premium difference between Plan G and Plan N ($20-40/month) becomes negligible relative to total costs.

Carrier Selection Strategy for Affluent Retirees

Financial Stability Priority

  • • A.M. Best rating A+ or higher
  • • Large reserves and stable financials
  • • Track record of staying in Medicare markets
  • • Examples: AARP/UHC, Mutual of Omaha, State Farm

Service Quality Focus

  • • 24/7 customer service
  • • Dedicated high-value client services
  • • Fast claims processing
  • • Concierge-level support availability

Rate Stability History

  • • Sub-5% annual increases
  • • 20+ year track record
  • • Conservative underwriting practices
  • • Large, stable risk pools

Tax-Advantaged Health Strategies

HSA Maximization Strategy (Pre-Medicare)

The ultimate retirement healthcare account

Triple Tax Advantage

  • • Tax-deductible contributions: Reduces current MAGI
  • • Tax-free growth: No taxes on investment gains
  • • Tax-free withdrawals: For qualified medical expenses
  • • After age 65: Can withdraw for any reason (taxed as income)

High-Earner Strategy

  • • Max contributions: $4,300 (2024) if 55+
  • • Don't spend - invest: Let it grow for Medicare years
  • • Save receipts: Reimburse yourself years later
  • • Medicare premium payments: HSA funds can pay Medigap premiums

Example: A 55-year-old contributing maximum HSA amounts for 10 years could accumulate $75,000+ by age 65, enough to pay Medigap premiums for 40+ years.

Estate Planning Integration

Spousal Strategies

  • • Income shifting: Balance income between spouses
  • • Asset titling: Optimize for MAGI calculations
  • • Roth conversions: Convert in spouse's lower-income years
  • • Charitable strategies: Use higher earner's income for QCDs

Legacy Considerations

  • • Life insurance: Pay premiums from taxable accounts
  • • Charitable remainder trusts: Reduce current MAGI
  • • Grantor trusts: Pay taxes to reduce estate
  • • Generation-skipping: Direct transfers to grandchildren

Case Studies: High-Earner Medicare Strategies

Case Study 1: The Corporate Executive

Managing IRMAA during the transition to retirement

Situation

  • • Age 65, retiring with $400K annual income
  • • $2M in 401(k), $500K in taxable investments
  • • Spouse still working (age 62, $80K income)
  • • Plans to delay Social Security until age 70

Without Planning

  • • MAGI: $400K+ (highest IRMAA tier)
  • • Medicare premiums: $666/month ($7,992/year)
  • • High tax burden on all retirement withdrawals
  • • Large RMDs starting at age 73

With Strategic Planning

  • • Defer/spread income over 3 years: $133K annually
  • • MAGI in second IRMAA tier: $272/month
  • • Annual Medicare savings: $4,728
  • • Roth conversions during low-income window

Medicare Supplement Choice: AARP Plan G ($180/month) for stability and comprehensive coverage. Premium difference vs Plan N negligible compared to total healthcare costs.

Case Study 2: The Successful Business Owner

Using business structures to optimize IRMAA

Situation

  • • Age 67, owns consulting business
  • • Variable income: $50K-$250K annually
  • • Significant investment portfolio
  • • Wants to continue working part-time

Challenge

  • • Unpredictable IRMAA exposure
  • • Large client payments create income spikes
  • • Investment gains add to MAGI
  • • Difficulty planning Medicare costs

Solutions

  • • Deferred compensation arrangements
  • • Income smoothing over multiple years
  • • Tax-loss harvesting in high-income years
  • • Charitable giving strategies

Medicare Supplement Choice: State Farm Plan G for rate stability. Predictable healthcare costs important given variable business income.

Action Plan for High-Income Medicare Planning

Phase 1: Pre-65 Planning (Ages 62-64)

Income Management

  • • Project MAGI for Medicare eligibility years
  • • Plan Roth conversions during low-income years
  • • Maximize HSA contributions if eligible
  • • Consider deferred compensation elections

Education & Preparation

  • • Research Medicare Supplement carriers
  • • Understand state-specific protections
  • • Plan for loss of employer coverage
  • • Consider long-term care insurance

Phase 2: Medicare Enrollment (Age 65)

Coverage Decisions

  • • Enroll in Medicare Part A & B during Initial Enrollment Period
  • • Choose Plan G from financially stable carrier
  • • Select low-cost Part D plan (IRMAA applies regardless)
  • • Avoid Medicare Advantage due to network restrictions

Tax Strategies

  • • Begin IRMAA-conscious income planning
  • • Start charitable giving strategies
  • • Time asset sales around IRMAA thresholds
  • • Consider QCD strategies after age 70½

Phase 3: Ongoing Management (Age 65+)

Annual Reviews

  • • Monitor Medicare Supplement rate increases
  • • Review IRMAA exposure based on 2-year lookback
  • • Optimize withdrawal strategies
  • • Evaluate state trial rights opportunities

Advanced Strategies

  • • Implement QCD strategies for RMDs
  • • Consider geographic relocation for tax benefits
  • • Estate planning integration
  • • Long-term care planning updates

Professional Resources for High-Net-Worth Medicare Planning

Tax Planning Team

  • • CPA: IRMAA-conscious tax strategies
  • • Financial Advisor: Coordinate investment and withdrawal strategies
  • • Estate Attorney: Integrate Medicare costs into estate planning

Medicare Specialists

  • • Medicare Insurance Agent: Licensed in Medicare Supplement sales
  • • Fee-Only Advisor: Objective Medicare guidance
  • • SHIP Counselor: Free state-sponsored advice

Ongoing Support

  • • Annual Reviews: Coordinate all aspects of Medicare and tax planning
  • • Proactive Communication: Alerts about policy changes and opportunities
  • • Concierge Services: High-touch service model

Optimize Your High-Income Medicare Strategy

Get personalized guidance on minimizing IRMAA while maximizing Medicare coverage

Expert guidance • IRMAA optimization • Comprehensive coverage planning

Key Takeaways for High-Income Earners

Medicare Supplement Strategy

  • • Choose Plan G: Comprehensive coverage justifies premium
  • • Prioritize stability: Select established, financially strong carriers
  • • Consider service: High-touch customer service worth premium
  • • Plan for increases: Budget 4-5% annual premium growth

IRMAA Management

  • • Plan ahead: IRMAA based on 2-year-old tax returns
  • • Use QCDs: Charitable giving reduces MAGI after 70½
  • • Time Roth conversions: Convert during low-income years
  • • Coordinate strategies: Work with tax and financial professionals