Re. Opening this up to the group too if anyone has any strategy for reducing/hiding income...not sure what to call it.
Ran your question through AI, here is the response:
This is a classic Medicare IRMAA (Income-Related Monthly Adjustment Amount) planning question, and the post raises several key points worth unpacking. Here’s a professional-level breakdown and insight into the situation:
1. Understanding the Problem Medicare premiums (for Parts B and D) are based on Modified Adjusted Gross Income (MAGI) from two years prior.
So, 2025 premiums = 2023 MAGI (from the tax return).
In this scenario:
- Taxable income: $180K
- ~$20K of that is from municipal bonds (excluded from federal taxable income, but not always excluded from MAGI for IRMAA if they are private activity bonds).
This puts the person’s MAGI likely around $160K, possibly still over the first IRMAA threshold ($103K single / $206K joint for 2023).
2. What Counts Toward IRMAA MAGI = AGI + tax-exempt interest (from IRS Form 1040).
So even tax-free muni bond income still adds back in for IRMAA. This surprises many people — “tax-free” ? “IRMAA-free.”
3. Key Strategies to Lower Future MAGI Here are legitimate and effective approaches that could be advised, depending on age, liquidity, and tax bracket:
A. Roth Conversions — Strategically Timed - Short-term: raises income > increases IRMAA in 2 years.
- Long-term: reduces future RMDs and IRMAA exposure.
- Smart use: perform partial conversions in low-income years (e.g., before RMDs or Social Security start).
B. Qualified Charitable Distributions (QCDs) - If over 70½, direct charitable gifts from IRA don’t count in AGI, effectively reducing MAGI while satisfying RMDs.
C. Manage Capital Gains Realizations - Defer realizing capital gains.
- Harvest losses to offset gains.
- Use ETFs and tax-managed funds to reduce taxable distributions.
D. Use Tax-Deferred Vehicles - Non-qualified annuities or cash value life insurance can shelter income growth until later.
- However, must be weighed against liquidity and fees.
E. Health Savings Accounts (HSAs) - If still eligible, HSA contributions reduce AGI.
- Tax-free growth and withdrawals for qualified expenses.
F. Business or Rental Deductions - If applicable, increasing deductions via depreciation or expense timing can reduce AGI.
4. Common Misunderstandings - Municipal bonds are not a shield for IRMAA.
- You can’t “hide” income legally — IRMAA is based on IRS data.
- Even “tax-free” interest and capital gains from mutual funds show up in MAGI.
5. Strategic Framing For clients in this situation, the conversation should focus on multi-year planning, not short-term avoidance.
You can explain it like this:
“You can’t hide income from IRMAA, but you can smooth income over time to avoid spikes that push you into a higher bracket.”
This means:
- Avoid large one-time events (e.g., Roth conversions, asset sales) in a single tax year.
- Spread them strategically over several years.
6. Bonus Insight — Bracket Thresholds (2023)
Filing Status2023 MAGI Thresholds for 2025 IRMAA
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| Single | $103,000 / $129,000 / $161,000 / $193,000 / $500,000+ | | Married | $206,000 / $258,000 / $322,000 / $386,000 / $750,000+ |
If the person’s MAGI can be kept below $206K (joint) or $103K (single), they’ll pay the standard Medicare premium.
Summary Insight
This “hypothetical person” isn’t screwed, but muni bonds alone won’t help. They need a forward-looking income management plan emphasizing:- Multi-year tax projection
- Capital gain control
- Charitable planning via QCDs
- Asset location (what’s held in tax-deferred vs taxable)
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