For some retirees, there is an added cost associated with Medicare premiums that can ambush their family budget.

Most Medicare enrollees pay the standard premium amounts for Part B (outpatient care) and Part D (prescription drugs). Still, about 7% of Medicare’s 64.3 million beneficiaries end up paying extra because their income is high enough for monthly income-related adjustment amounts, or IRMAAs, to kick in, according to the Centers for Medicare. & Medicaid Services.

Whether or not you have to pay the surtax is based on your modified adjusted gross income as defined by the Medicare program: your adjusted gross income plus tax-exempt interest income. For 2022, IRMAAs come into effect when this amount exceeds $91,000 for individuals or $182,000 for married couples filing joint tax returns. The higher your income, the greater the markup.

“You only have to spend an extra $1 [lowest] breakpoint and you’re subject to IRMAAs,” said Certified Financial Planner Barbara O’Neill, owner and CEO of Money Talk, a financial education company.

“If you’re close to that or about to get to the next level, you really need to be proactive,” O’Neill said.

In other words, there are planning strategies and techniques that can help you avoid or minimize these IRMAAs. Here are four to consider:

One way to reduce your taxable income is to avoid having all your nest egg in retirement accounts whose distributions are taxed as ordinary income, like a traditional IRA or 401(k). So whether you’re already enrolled in Medicare or not, converting taxable assets into a Roth IRA can be helpful.

Roth contributions are taxed upfront, but qualified withdrawals are tax exempt. This means that even though you would pay tax now on the converted amount, the Roth account would provide tax-free income down the road – as long as you are at least 59.5 years old and the account has been open for more than five years, or that you meet an exclusion.

“You pay a little more now to avoid higher tax brackets or IRMAA brackets later,” Meinhart said.

It’s also helpful that Roth IRAs don’t have required minimum distributions, or RMDs, during the owner’s lifetime. RMDs are amounts that must be withdrawn from traditional IRAs as well as traditional 401(k)s and Roths once you reach age 72.

When the RMDs from traditional accounts take effect, your taxable income may be increased enough for you to become subject to the IRMAA, or by a higher amount if you were already paying the surcharge.

“A lot of people get in trouble with not taking any money out of their 401(k) or their IRA, and then they have their first RMD and that puts them in one of those IRMAA brackets,” Meinhart said.

If you have assets that could generate a taxable profit when sold, i.e. investments in a brokerage account, it may be worth assessing how well you can handle those capital gains.

While you may be able to time the sale of, say, a popular stock to control when and how you would be taxed, some mutual funds have a way of surprising investors at year-end with capital gains and dividends, which feed into the IRMAA calculation.

“With mutual funds, you don’t have a lot of control because they have to pass the earnings on to you,” said O’Neill of Money Talk. “The problem is that you don’t know how big those distributions will be until very late in the tax year.”

Depending on the specifics of your situation, it may be worth considering holding exchange-traded funds instead of mutual funds in your brokerage account because of their tax efficiency, experts say.

For investments that you can time to sell, it’s also important to remember the benefits of tax loss harvesting as a way to minimize your taxable income.

In other words, if you end up selling assets at a loss, you can use those losses to offset or reduce any gains you have made. Generally, if the losses exceed the profits, you can use up to $3,000 per year against your regular income and carry forward the unused amount to future tax years.

If you are at least 70.5 years old, a qualified charitable contribution, or QCD, is another way to reduce your taxable income. The contribution goes directly from your IRA to a qualified charity and is excluded from your income.

“It’s one of the few ways to withdraw money from an IRA tax-free,” Meinhart said. “And when you turn 72, this charitable distribution can help offset your required minimum distributions.”

The maximum you can transfer is $100,000 per year; if you are married, each spouse can transfer $100,000.