If your income is over a certain dollar amount in retirement, you may be required to pay an additional charge for your Medicare health care coverage. This surcharge can potentially add hundreds of dollars to your premiums each month, reducing the overall amount of money you have for lifestyle and other discretionary spending in retirement. 

However, with proper planning and personalized guidance from an Ameriprise financial advisor, you may be able to mitigate this extra cost and keep more of your hard-earned money. Here’s how the Medicare surcharge works and actions you can take to avoid it. 

How does the Medicare surcharge work? What is IRMAA? 

If your modified adjusted gross income (MAGI) number is above a certain threshold (see the table below for details), you’ll be required to pay a surcharge called the Income-Related Monthly Adjustment Amount (IRMAA), which applies to both Medicare Part B (covering doctor services and outpatient care) and Medicare Part D (covering prescription drugs). IRMAA surcharges are based on your MAGI from two years prior. 

Your eligibility for the Medicare surcharge is evaluated on an annual basis, during the open enrollment period. 

5 strategies to avoid or reduce the Medicare surcharge 

Though paying IRMAA surcharges may be unavoidable in some cases, with careful planning, there are strategies you can take to reduce or avoid it. Most of these actions involve lowering your MAGI: 

1. Manage RMDs: Once you turn 73, RMDs — the minimum amounts you must withdraw each year from tax-deferred retirement accounts — are typically considered part of your taxable income. Depending on your overall income and filing status, RMDs could trigger IRMAA, so it’s important to account for these distributions in your MAGI. Strategically managing the impact of RMDs can help keep you below the IRMAA income threshold.  
    
2. Consider a Roth conversion: A Roth conversion can help you reduce your RMDs and future taxable income. Roth conversions can be especially beneficial after you stop working and before you take Social Security or when RMDs begin.  
   
   For most people, this period is when their taxable income is the lowest, allowing them to get money out of their traditional IRAs at a favorable tax rate. However, it’s important to consider how a Roth conversion can impact MAGI in the year it is done. Doing one large Roth conversion could generate IRMAA surcharges for one year, but you may also be able to do ongoing conversions over several years that keep you under the MAGI thresholds for IRMAA. 
    
3. Explore your eligibility for the 0% capital gains rate: If your income is low enough during your early years of retirement, you may be able to sell investments with the 0% long-term capital gains tax rate. This strategy can help reduce capital gains in the years before your taxable income includes both Social Security benefits and RMDs. 
    
4. Leverage qualified charitable distributions: If you’re age 70½ or older, you can donate directly from your traditional IRA to a qualified nonprofit organization via a qualified charitable distribution (QCD). The QCD can count toward your annual RMD (once you’re required to take them) and does not increase your taxable income, potentially allowing you to avoid the IRMAA surcharge, depending on your income and how much you donate. 
    
5. Contact the Social Security office after a significant life event: Certain life-changing events — such as retirement, marriage, divorce, the death of a spouse, loss of income and an employer settlement payment — can lower your taxable income going forward. If you are paying the IRMAA surcharge and experience such an event, request an IRMAA reduction by completing form SSA-44 and submitting it to the Social Security Administration. 

Lower your health care costs in retirement 

An Ameriprise financial advisor can help you create a retirement income strategy that accounts for the Medicare surcharge and help you identify other strategies to help lower health care costs in retirement.