By Carolyn Rice
At age 72 (recently raised from 70.5 by the passing of the SECURE act in late 2019) you are required to begin taking annual distributions from your IRA which count toward your adjusted gross income on your tax return. For high income individuals, that income is then used to calculate the income related surcharge on your monthly premiums for your Medicare Part B. Beginning at a modified adjusted gross income (MAGI) of $87,000 for individuals and $174,000 for those filing joint, those Part B premiums begin to go up from $144.60 per month topping out at $491.60 per month at incomes of $500,000 for individuals and $750,000 for those filing joint. Part B premiums increase by 40% or more at each income threshold increasing total payments by thousands of dollars each year. Being even one dollar over the income level causes the full corresponding surcharge to apply for all Part B premiums paid for the entire year.
One strategy for charitably minded individuals to help mitigate this income surcharge is to use all or part of your required distribution from your IRA to gift directly to qualified charities that you support. By gifting to a charity directly from your IRA the distribution is not counted toward your MAGI and therefore not included in the calculation for your Part B premiums. While gifting directly from your IRA does not allow you to deduct the charitable contribution on your tax return, with the new tax laws enacted in 2017 many individuals no longer itemize on their tax returns and so don’t use the charitable deduction anyway.
This can be a good ‘three birds with one stone’ strategy; saving on your taxes, saving on your Medicare premiums and supporting a cause you care about. We suggest consulting with your accountant to see if this strategy would benefit you.