IRMAA - how to avoid with this xtra tax

[workmyfingerstothebone]

Hi folks,
Turning 65 next year, 2023, and will be filing for Medicare .The wife still has a few years before she's eligible. I have a ton of questions on what "plans" to pick but that will be another post.

This post/thread is for "Income-related monthly adjustment amounts (IRMAAs) which are based on a person’s adjusted gross income and may affect their Medicare premiums. When a person makes more than the allowed income, Medicare adds a charge to the Part B premium, Part D (Medicare prescription drug coverage) premium, or both."


They look at your tax filings from 2 years ago to determine how much to increase your Medicare costs. In 2021 we sold the rental and paid ridiculous taxes both federal and state, at least for us.


So when I sign up for Medicare in 2023 they will look at the tax filings for the 2021 year, which is not our normal income, to determine if I exceed IRMAA's allowed income. I know for that year we do exceed the allowed income and will pay more for Medicare. Ouch


Any ideas on how I can have them look at another years' tax filings?
Can I petition Medicare on how to work for a fairer resolution?
Would they just use my income from the tax filing year?

How would they handle the capital gains on the sale of the rental, split it since the wife won't be filing?
I'm going crazy with all this.


I'm hoping someone on this sight has some insight on this issue.

 

[TheWizard]

There are just seven Life Changing Events that qualify for consideration on form SSA-44.
Loss of EMPLOYMENT income, due to retirement is one of those Events.

But capital gains from the sale of stocks, real estate or anything else is not a covered event. Rather, the reduction in income for 2022 due to no capital gain similar to 2021 is not a covered event.

So you'll pay an IRMAA amount for 2023.

They will compute your IRMAA tier using MFJ thresholds for your joint AGI but only you will be affected for 2023 since your wife isn't Medicare age yet.
Hopefully your birthday is late in the year so IRMAA for only a few months...

 

[jebmke]

There is an appeal process but I've only heard of limited success.

It is a one time deal so it will reset the next year, FWIW.

 

[audreyh1]

IRMAA - mods should edit the thread title.

I see it’s correct in the rest of the post.

Unfortunately I think that one time capital gains aren’t an exception.

 

[TheWizard]

...So when I sign up for Medicare in 2023 they will look at the tax filings for the 2021 year, which is not our normal income, to determine if I exceed IRMAA's allowed income. I know for that year we do exceed the allowed income and will pay more for Medicare...

Your "allowed income" terminology is a bit off.
You can have whatever level of income you can contrive, but we higher income retirees simply pay more for Medicare to help subsidize the lower income folks.

So it's best to manage your AGI each year after 65 using Roth conversions so you don't get into the next higher IRMAA tier...

 

[braumeister]

So you'll pay an IRMAA amount for 2023.

They will compute your IRMAA tier using MFJ thresholds for your joint AGI but only you will be affected for 2023 since your wife isn't Medicare age yet.
Hopefully your birthday is late in the year so IRMAA for only a few months...

Exactly right. Just suck it up, since it's only for the one year.

 

[audreyh1]

For IRMAA you have to start managing your AGI in the year the oldest of a couple turns 63 as that will impact you in the year you turn 65 and start Medicare payments.

 

[38Chevy454]

One thing to consider, is not letting the IRMAA penalty influence your overall income and tax strategy. It might be beneficial to do more Roth conversions now while tax rates are lower until 2025 rates reset, for example. Look at the bigger picture is all I am saying.

Yes, IRMAA penalty is not a nice thing to get stuck paying. I can understand the psychological aspects. But if paying a few thousand in IRMAA vs saving more than that in overall taxes paid, it could be a decent tradeoff. Depends on your situation of course.

 

[Car-Guy]

For a few years I was getting PO'd about paying IRMAA (still don't like it) but in the bigger picture I realize it really shouldn't matter that much to me. In the worse case I only pay an addition ~5k/yr for my Medicare... Pretty small $ when you consider your income bracket that is forcing you to pay that.

Even with that said, it still bothers me to have to pay so much more for the exact same coverage that most others pay for.

 

[jebmke]

One thing to consider, is not letting the IRMAA penalty influence your overall income and tax strategy. It might be beneficial to do more Roth conversions now while tax rates are lower until 2025 rates reset, for example. Look at the bigger picture is all I am saying.

Yes, IRMAA penalty is not a nice thing to get stuck paying. I can understand the psychological aspects. But if paying a few thousand in IRMAA vs saving more than that in overall taxes paid, it could be a decent tradeoff. Depends on your situation of course.

I just happened to be looking at the 2023 IRMAA brackets and in checking our 2021 income noted that we came in less than $500 below the next bracket. In 2020 I harvested some losses in an international fund during the down tick. I had a carryover in 2021 of $3K that brought us down into the next bracket. An extra bonus from tax loss harvesting.

 

[Souschef]

Wait until you are 72 and have to start taking RMD's. That will really push your AGI up.

 

[gauss]

^ Which is why I am maxing out the 24% bracket with Roth conversions each year to try to get ahead of this.. (more than 5 more years until Medicare age in my case).

Also for those of us delaying SS and any pensions until the maximum age when they stop increasing (ie age 70/72) in my case, these are additional income streams with the potential to screw up IRMAA. But granted I realize that this is a "First World Problem."

-gauss

 

[gromit]

IRMAA is based on MAGI, not AGI.

 

[Irishgirlyc58]

Even with that said, it still bothers me to have to pay so much more for the exact same coverage that most others pay for.

I will be 65 in 2023 and this really bothers me too.
I have a pension so there’s no room for adjusting my income. It is what it is.
Can I afford it? Sure, but it’s not like I’m rolling in dough.
It really rubs me the wrong way.
I guess we all have our pet peeves.

 

[audreyh1]

One thing to consider, is not letting the IRMAA penalty influence your overall income and tax strategy. It might be beneficial to do more Roth conversions now while tax rates are lower until 2025 rates reset, for example. Look at the bigger picture is all I am saying.

Yes, IRMAA penalty is not a nice thing to get stuck paying. I can understand the psychological aspects. But if paying a few thousand in IRMAA vs saving more than that in overall taxes paid, it could be a decent tradeoff. Depends on your situation of course.

Very good advice overall.

 

[audreyh1]

IRMAA is based on MAGI, not AGI.

That’s right, you have to add your tax exempt interest - like municipal bond interest.

 

[TheWizard]

Wait until you are 72 and have to start taking RMD's. That will really push your AGI up.

We'll, maybe.
I'm 72 presently but did Roth conversions over the past decade roughly equivalent to what my SS+RMD is now, with an inflation growth allowance.
No more larger Roth conversions anymore, so my AGI won't be much different henceforth...

 

[TheWizard]

IRMAA is based on MAGI, not AGI.

For those of us with zero tax-exempt income (like me), MAGI = AGI...

 

[workmyfingerstothebone]

Thanks everyone for your input.


This is just another "gotcha" that we didn't plan for. I try to plan a few years ahead to catch things like this. For example, buying a car in the next 3 years, or roof replacement in the next 5 years, fence replacement ... etc.

This one just caught me of guard and pisses me off.
It's not like we are ubber wealthy; at most maybe lower upper middle wealthy , 5K extra a year in insurance is a lot.... though I'm not sure what the increase works out to be.


My birthday is late in the year, November. Expect Medicare to start in December.

 

[W2R]

If it makes you feel any better, you're not alone! Many or maybe even most of us get stuck paying IRMAA on any given year. It's gotten to the point where if I don't have to pay it, I consider it to be my lucky year.

 

[Midpack]

We pay IRMAA premiums every year for Roth conversions (now in year 4 of 6-8) which doesn’t seem “fair” to me, but there’s no way around it and appeal is a waste of time. I’d be thrilled if I only had to pay IRMAA premiums for one year like the OP…

 

[RetMD21]

For a few years I was getting PO'd about paying IRMAA (still don't like it) but in the bigger picture I realize it really shouldn't matter that much to me. In the worse case I only pay an addition ~5k/yr for my Medicare... Pretty small $ when you consider your income bracket that is forcing you to pay that.

Even with that said, it still bothers me to have to pay so much more for the exact same coverage that most others pay for.

I look at it as more of an extra tax rather than a Medicare fee. I also don't like the net investment tax but if you are in the income range you are stuck.

 

[Souschef]

I do not know where the $5K number comes from. It will cost me an additional $68 a month in my bracket.
According to the chart I saw, The $5K cost is for a MAGI of over $750K.

 

[joesxm3]

How do they figure IRMAA? Does the IRS give them the numbers or do you have to report your income somewhere?

 

[MichaelB]

Even with IRMAA my premiums are lower than my pre-Medicare insurance, and the deductible is a couple of hundred $$, not $10k. No one likes to pay more, but it helps me to keep in mind that Medicare is 75% subsidized and IRMAA means the subsidy is smaller.

A challenge for me is unexpected distributions from active fund investments have pushed me over a MAGI threshold twice. I find it irritating not being able to project MAGI more closely and do see that as a penalty - paying for my imprecision.