My Social Security payments dropped in half and my Medicare premiums doubled! Why?!!
Learn about IRMAA and how can it affect you when applying for Medicare
Unfortunately, for many higher income earners – the term “IRMAA” doesn’t mean anything until they enroll in Medicare Part B and Part D and by then, it’s too late. This info bulletin will outline the issues and how your Medicare Part B & D premiums can increase significantly. It will also provide guidance around how to potentially minimize IRMAA by proactively addressing it years before enrolling in Medicare.
Q: What is IRMAA?
A: IRMAA stands for “Income Related Monthly Adjustment Amount” and is a way of “means testing” your Medicare Part B & D premiums based upon how high your income is. In essence, the more you make, the more you pay for the adjustment charge. Almost everyone pays a base rate (explained below) but if your modified adjusted gross income (MAGI) is above a certain amount, you will pay the standard Medicare premium plus IRMAA. Note, this is not a “tax” – but an “additional adjustment amount” added to your premium.
Q: How does it work and why should you care?
A: Your financial advisor should be working with you at least a few years before you plan to start Medicare. IRMAA is based on the MAGI on your tax return two years prior to applying for Medicare (so for those starting Medicare in 2024, 2022 MAGI applies).
Let’s look at an example. Say you are preparing to retire and obtain Medicare Part B and D in 2024. A couple of years ago you sold your business, some rental properties or some other taxable asset you have been holding in preparation for retirement (along with your wages). If your joint MAGI in 2022 exceeded $206k and you applied for Medicare Part B and D in 2024, IRMAA will apply. Instead of paying the base rate of $174.70 per month for Medicare Part B, you could be paying up to $594.00 per month (a 240% increase, see the table below) . . .just for you. If your spouse also applied for Medicare Part B and D in 2024, they would also pay the same $594.00 per month if you file jointly. That’s an additional $838.60 per month! So now as you and your spouse start your well-earned retirement you have this huge monthly payment right from the start – probably more than you had anticipated. Oh, and look at what happens with Part D in the table below, up to another $81.00 per month, for each of you
| Part B and IRMAA | |||
| File Individual Tax Return | File Joint Tax Return | You Pay Each Month (in 2024) | |
| $103,000 or less | $206,000 or less | $174.70 | |
| Above $103,000 up to $129,000 | Above $206,000 up to $258,000 | $244.60 | |
| Above $129,000 up to $161,000 | Above $258,000 up to $322,000 | $349.40 | |
| Above $161,000 up to $193,000 | Above $322,000 up to $386,000 | $454.20 | |
| Above $193,000 and less than $500,000 | Above $386,000 and less than $750,000 | $559.00 | |
| $500,000 or above | $750,000 and above | $594.00 | |
| Based upon https://www.medicare.gov/your-medicare-costs/part-b-costs | |||
| Part D and IRMAA | |||
| File Individual Tax Return | File Joint Tax Return | You Pay Each Month (in 2023) | |
| $103,000 or less | $206,000 or less | Your plan premium | |
| Above $103,000 up to $129,000 | Above $206,000 up to $258,000 | $12.90 + your plan premium | |
| Above $129,000 up to $161,000 | Above $258,000 up to $322,000 | $33.30 + your plan premium | |
| Above $161,000 up to $193,000 | Above $322,000 up to $386,000 | $53.80 + your plan premium | |
| Above $193,000 and less than $500,000 | Above $386,000 and less than $750,000 | $74.20 + your plan premium | |
| $500,000 or above | $750,000 and above | $81.00 + your plan premium | |
| Based upon https://www.medicare.gov/drug-coverage-part-d/costs-for-medicare-drug-coverage/monthly-premium-for-drug-plans | |||
Q: What can I do?
A: Unfortunately, not much after IRMAA is applied. There are a few life-changing events that may exempt you from IRMAA after-the-fact by appealing to the Social Security Administration on Form SSA-44. You can see on the form that a marriage, divorce, death, loss of pension income will qualify for the exemption. But to be clear, a one-time capital gain is not an exemption. However, with good tax planning in advance of IRMAA, you may be able to reduce your MAGI by deferring capital gains or other income to the next tax year, maxing out your 401k plan, contributing to a deductible IRA or starting a SIMPLE or SEP IRA. However, increasing your deductions won’t help with reducing your MAGI.
Q: After the two years, I should be good . . . right?
A: Not necessarily. Again, this is another great reason your financial advisor should be proactive with you two or more years before and after you are enrolled in Medicare Part B and Part D. For example, you need to start taking required minimum distributions from your IRA at age 72. Has this been factored into your tax planning and IRMAA? What about when you collect Social Security? In our experience, most “advisors” are focused on your portfolio and can’t even render any tax advice.
Q: So where do I start?
A: It all comes down to working with a financial advisor who looks at your goals and objectives and structures all aspects of your financial situation, including tax planning, to achieving them. Ideally, this is someone who does comprehensive financial planning and belongs to feeonly.org. Beware of someone just focused on the size of your portfolio or is compensated by the sale of financial products but rather upholds a fiduciary responsibility to you. IRMAA questions should be addressed well in advance of your retirement date considering your unique circumstances along the way.
Article by:
Brian Wruk, MBA, CFP®, CIM, TEP
Transition Financial Advisors Group
(480)722-9414
Don Balascak, MBA
(480) 653 6440
Licensed Health Care Agent
Licensed in AZ, TX, OR, and Maine
www.AzMedPlans.com
“Not Connected with or Endorsed by the United States Government or the Federal Medicare Program”