Medicare’s IRMAA Surcharges and How to Avoid Them
By Joe Globensky, RFC®
Did you look at the title, Medicare IRMAA Surcharges, and think, “I’m not 65, this doesn’t apply to me.” Oh, but it does. Let me explain.
What is IRMAA?
IRMAA stands for Income Related Monthly Adjustment Amount. An IRMAA is a surcharge added to your monthly Medicare Part B and Part D premiums based on your yearly income. The Social Security Administration (SSA) uses your income tax information from 2 years prior to determine if you owe an IRMAA in addition to your monthly premium.
Two years prior to enrolling in Medicare, what are most people experiencing? Their peak earning years and dreams of retirement. What they’re not thinking about is how their income could affect the future cost of their health insurance. And possibly in a very expensive way.
Medicare Costs in 2022
The standard Part B premium amount in 2022 has increased to $170.10. Most people pay the standard Part B premium amount. If your Modified Adjusted Gross Income (MAGI) as reported on your IRS tax return from 2 years ago is above the limits listed below, you’ll pay the standard premium amount and an IRMAA.
|If your MAGI in 2020 was :|
|FILE MARRIED &
SEPARATE TAX RETURN
|YOU PAY EACH MONTH (2022)|
|$91,000 or less||$182,000 or less||$91,000 or less||$170.10|
|Above $91,000 up to $114,000||Above $182,000 up to $228,000||Not applicable||$238.10|
|Above $114,000 up to $228,000||Above $228,000 up to $284,000||Not applicable||$340.20|
|Above $142,000 up to $170,000||Above $284,000 up to $340,000||Not applicable||$442.30|
|Above $170,000 and less than $500,000||Above $340,000 and less than $750,000||Above $91,000 and less than $409,000||$544.30|
|$500,000 or above||$750,000 or above||$409,000 or above||$578.30|
Ways to Avoid IRMAA Surcharges
The primary way to avoid IRMAA surcharges involves planning, specifically income planning. If your Medicare Part B will start at age 65, and the IRMAA calculation is a two-year look back, you need to start your income planning prior to age 63.
Some financial decisions can impact your taxable income and your IRMAA amount. The following actions all raise your annual income:
- Selling real estate
- Taking distributions from retirement accounts
- Carrying out transactions that net a large capital gain
- Converting funds in a traditional IRA to a Roth IRA
It’s important to speak with a financial planner, CPA, or tax adviser to help you plan these transactions to reduce the impact on your Medicare premiums. And continue your income planning every year thereafter since IRMAA calculations are made every year once you are on Medicare.
If you’ve had a life-changing event in the past two years, you can file Form SSA-44 to let Medicare know about the reduction in your income.
The following events may qualify you for an exception to the IRMAA surcharges:
- Spouse’s death
- Reduced hours or loss of your job
- Loss of income-producing property
- Reduction or loss of your pension
- Settlement from an employer
Qualified Charitable Distributions
If you are 70 ½ or older and have funds in retirement accounts, you can make Qualified Charitable Distributions to 501(c)(3) charitable organizations directly from these accounts. If you don’t need the money to live on, and you’re charitably inclined, this is a tax-efficient way to benefit charities, and yourself, as these distributions will not count as income when IRMAA is calculated.
It’s a good idea to work with your financial adviser or CPA to make sure you’re following IRS guidelines for making the donation. For example, you can have the check made out directly to the organization to ensure the IRS doesn’t count it as part of your income.
IRMAA surcharges have come as a surprise to many people because in the two years prior to Medicare eligibility, there’s a lot going on. And you don’t hear much about IRMAA surcharges until you’re hit with one, which is exactly the wrong time to learn about them. But, with a little planning, you can potentially avoid a costly mistake before it’s too late.
At Connections Financial Advisors, our mission is to help clients make more informed decisions to better their financial position and reduce their financial stress. Whether it’s helping to avoid IRMAA surcharges, planning for retirement, or helping you manage your investment portfolio, we are here for you. Please call us at (217) 605-8130, send us an e-mail, or go online and schedule a complimentary initial meeting.
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