Tax-aware long/short could cut Medicare costs
People hate paying more for Medicare
“People hate paying more for Medicare,” my pal Andy Pratt at Burney Wealth Management recently said, “I didn’t even realize that was a thing until we launched our wealth planning arm... then it was very much a thing I kept hearing over and over.”
Most Americans enroll in Medicare at age 65 to avoid penalties and coverage gaps. It is not free.
This surprises many retirees who had employer-sponsored health insurance for their entire careers.
According to the Centers for Medicare & Medicaid Services, in 2025, couples enrolled in Medicare can expect to pay the standard Part B premium of $185/month (or $2,220/year) per individual (thus, $4,440/year for a couple).
But… SSA says “If you have a higher income, you'll pay an additional premium amount for Medicare Part B and Medicare prescription drug coverage [Part D]. We call the additional amount the “income-related monthly adjustment amount,”” also known as IRMAA.
Medicare premiums are cliffs, not marginal rates 😱
IRMAA is based on investors’ modified adjusted gross income (MAGI).
If an investor is $1 above any MAGI threshold in the IRMAA staircase, then investors pay all Medicare premiums that year at that rate.
Medicare enrollees pay the standard premium mentioned above if their MAGI is below $212,000 (2025, married filing jointly).
Thanks to IRMAA, a couple pays ~$2,000 more per year for the same coverage at $212,001.
MAGI starts with AGI, including wages, dividends, and capital gains, and adds back tax-exempt interest.
Here’s how it looks on IRS Form 1040.
IRMAA is calculated based on MAGI from two years earlier.
“If you have this big tax year where you're generating capital gains for a client, they look at that like ‘Oh my gosh’ I already paid the tax, but I'm still going to be paying for it,” via IRMAA premiums, Andy told me.
Thus, an investor that lowers realized capital gains (through deferral strategies like tax-loss harvesting and tax-free rebalancing through the ETF wrapper) could lower their adjusted gross income, and thus modified adjusted gross income, and thus IRMAA premiums.
Tax-aware long/short for the (capital gains) win
So, the idea is that capital losses, especially persistent ones from tax-aware long/short strategies like 130/30, 150/50, etc., have a little extra benefit in keeping investors away from the next IRMAA step (because they lower MAGI).
Some say Medicare premiums, including IRMAA, which could be 1%-2% of AGI, are too small to bother with any planning. “Big whoop. Not going to move the needle.”
That’s not the whole story, though. Here’s Andy again: "It’s that emotional moment: 'I finally retired. I thought my taxes would go down, and now I’m getting this IRMAA letter.'"
“…there are areas where an advisor could add value to their clients by paying attention to IRMAA thresholds,” Kitces said. “For instance, an advisor recommending that their client engage in Roth conversions or capital gains harvesting could weigh the benefits of these strategies against the costs of moving into a (higher) IRMAA tier.”
The point is that even if the numbers are small, clients care.
Since IRMAA is so sensitive to changes in MAGI, an ETF that indefinitely defers capital gains through in-kind redemption, could squeeze out more tax deferral juice from the same portfolio.
I wrote earlier about Burney’s unusual approach to tax-aware long/short strategies, namely their use of an ETF for the long side of the strategy.
The net effect of these two tax deferral perks is more portfolio compounding through less tax drag.
This is analysis, not investment, tax, or legal advice. I am not a tax professional or financial adviser. Hire one for personalized guidance.
This article was initially created for paid Tax Alpha Insider subscribers. Burney Company licensed it for broader distribution. Tax Alpha Insider maintained full editorial independence.
Speaking of MAGI…
