Yes, but it always has been.
By Jason LaBarge, Financial Advisor and President of LaBarge Financial
The year 2025 has seen increasing unease among retirees and working Americans. Already nervous about reports the Social Security trust fund will be exhausted in about a decade, news reports today now frequently center around cuts in Social Security Administration staffing and other actions by the Department of Government Efficiency. People are increasingly worried that Social Security as an institution is under attack and may not be available to them when they’re ready to retire.
The reality is, it’s been under attack for years! Understanding this issue requires a deep dive into how Social Security and Medicare are linked by a means-tested surcharge called IRMAA. For those fortunate enough to have saved for a comfortable retirement, the Income-Related Monthly Adjustment Amount dictates how much more you will pay for Medicare than everyone else, and the extra money you owe is deducted from your Social Security benefits.
If your modified adjusted gross income is higher than $106,000 as a single-filer, or $212,000 if you’re married and filing jointly, IRMAA kicks in, and you will have to pay more for Medicare Parts B and D. IRMAA uses a “two-year lookback,” which means what you pay for Medicare in 2025 is based on your 2023 tax returns.
This can get particularly sticky for new retirees. If you leave a highly compensated position to enter retirement, as far as Medicare is concerned, you are still making that generous salary and must pay extra. This means some people must pay as much as $628.90 more per month than regular Medicare recipients. That’s a significant percentage of your Social Security benefit!
The fascinating part about this setup is that the law authorizing it was passed in 2003, but the means-tested part wasn’t set to be implemented until 2016. Many will wonder, why the delay? It’s all about the boomers.
Boomers hold the largest concentration of wealth in human history — much of it in IRA and other tax-deferred accounts. Those accounts have required minimum distributions (RMDs) which, in 2016, kicked in once you turned 70½, and those distributions count as income. In 2016, the first group of boomer retirees turned 70. To offset Social Security liabilities with taxes from retirement accounts, the government started with the accounts that have the highest balances.
One factor shows the bipartisan politicians who implemented IRMAA knew what they were doing: In 2010, they authorized a one-time program in which you could convert your IRA into a Roth IRA and, unusually, spread the tax liability that generated over three years. Those politicians joined regular Americans in converting their money into tax-free retirement accounts that carried no RMDs and therefore couldn’t be used to juice your income and force you to lose Social Security benefits to IRMAA payments.
Clearly, IRMAA is a ticking time bomb waiting to drain your retirement savings, but it doesn’t have to be that way. It’s possible to prepare your retirement finances to reduce the impact of IRMAA, but for that, your financial advisor needs to be aware of the problem and plan for it. Make sure your advisor is well versed in Social Security, Medicare and IRMAA so your Social Security checks go to you, rather than back to the government.
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The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability, or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.
Jason LaBarge, Financial Advisor and President of LaBarge Financial
7 Riggs Avenue, Severna Park, MD 21146 443-647-4321
www.LaBargeFinancial.com
Securities offered only by duly registered individuals through Madison Avenue Securities, LLC (MAS), member FINRA/SIPC. Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. MAS and LaBarge Financial are not affiliated entities. 04/25-2980743
Source: Kiplinger.com. Taylor, Joy. The Many Definitions of Modified Adjusted Gross Income (MAGI). February 28, 2024.