Dodging the Medicare Premium Penalty

image of a medicare card

The amount paid for Medicare Part B and Part D premium is determined by your modified adjusted gross income (MAGI). MAGI is your Adjusted Gross Income (AGI) plus exempt and excluded income and certain deductions. Just having $1 too much of MAGI over an IRMAA bracket can cause hundreds more dollars in added Medicare premium for the year due to the nature of the “income limit cliff”. We want to share a strategy to help avoid situations like this happening. See the link below for 2023 IRMAA tables.

Now the obvious question here is how do you make sure you aren’t paying more than you need to in Medicare premiums? Sure, you could just stop earning more money, or cut your distributions from qualified accounts down. There’s another option that works a lot better without heavily impacting your cash flow. This is where Qualified Charitable Distributions (QCDs) come in. If you are someone that is taking Required Minimum Distributions (RMDs) or over 70.5 years of age, this strategy is for you. Instead of receiving your annual RMD and having the amount be taxed as income, and therefore increasing your MAGI and potentially your Medicare Premiums, you can instead choose to give a portion of that RMD to
a charitable organization of your choosing. Doing so will cause that portion that was gifted to be excluded from your taxable income calculation. Less income tax means lower MAGI. Lower MAGI means you can make sure you don’t breach any IRMAA brackets and not increase your Medicare Premiums. Lower your taxes, keep Medicare premiums low, and gifting to a cause you care about. That’s a win-win.