One of the biggest misconceptions you might come across in the context of Medicare is that the program is free for seniors. While it's true that Medicare Part A, which covers hospital care, generally doesn't cost money to have coverage, parts B and D do charge enrollees a premium on a monthly basis. Medicare Part B covers general outpatient care, while Part D covers prescription drugs.
Each year, there's a standard premium set for Medicare Part B. In 2024, it will be $174.70 per month. That's up from $164.90 at present. There's no standard monthly premium for Part D because that number can vary from one plan to the next.
Some seniors, however, get charged extra for their Medicare Part B and Part D coverage. If that happens to you, it's important to know that you might have a way out of paying those surcharges -- but only under specific circumstances.
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When you're forced to pay more for Medicare coverage
Being a higher earner in retirement could mean more financial flexibility. But it could also mean having to pay more for Medicare due to income-related monthly adjustment amounts, or IRMAAs.
IRMAAs are calculated based on tax returns from two years prior. So if you're someone facing an IRMAA for 2024, it's based on your income from 2022. An income of over $103,000 will put you at risk of a 2024 IRMAA if you're single. If you're married and file a joint tax return, the same happens with an income of over $206,000.
IRMAAs are also proportionate to income, so the higher yours is, the more you might have to pay.
However, because IRMAAs are based on previous income, and not current income, you might be able to appeal yours. To succeed, you'll need proof that your financial situation has changed since your income was calculated.
So, let's say you were married in 2022 and have since been divorced. That could be a qualifying event that leads to a successful IRMAA appeal for 2024. You might also be able to appeal your IRMAA on the basis of having left your job and kicked off your retirement, resulting in a substantial drop in income.
There are different scenarios where you might be let off the hook for IRMAAs. So it's a good idea to file an appeal if you have experienced any sort of life-changing event that has resulted in a notable decline in income.
Know what costs you're in for
Even if you've been a Medicare enrollee for years and have never faced an IRMAA, you could be charged one in 2024 depending on how circumstances shake out. So pay attention to your 2024 Medicare benefit notice once it arrives in the mail. And prepare to take action if you see that you're on the hook for an IRMAA but your income picture is very different now than it was a couple of years ago.
There are also steps you can take to avoid facing IRMAAs. Converting some of your retirement savings to a Roth IRA, for example, could be a way to reduce your taxable income in the future, making it less likely that IRMAAs will come into play.
