Updated IRMAA estimates for 2025

[Joylush]

It's a shame that this topic is so confusing to so many.

In a nutshell, your MAGI on your 2023 taxes (that you'll be filing in the coming months) determines your IRMAA level (or lack of it) for your Social Security cost in 2025. That's the two-year factor.

Similarly, your MAGI in 2024 determines your IRMAA level in 2026. Etc., etc.

Ok. That’s what I thought. I’m selling a house in 2024 which is going to affect my Medicare rate which I’ll be eligible for in 2026 (the year I turn 65).

I wonder, what is the window to sign up for Medicare? I don’t turn 65 until the very end of the year. Could I wait to file for Medicare until 2027 (a month after turning 65) and would that change my look back period to 2025? I know, that’s wishful thinking.

 

[braumeister]

Ok. That’s what I thought. I’m selling a house in 2024 which is going to affect my Medicare rate

Are you sure about that? Is the gain from the house going to be that big?

 

[Gumby]

Are you getting Social Security now? If so, you are already signed up for Medicare Parts A & B as soon as you turn 65. If not, you have apply. You can apply to start Medicare up to 3 months after you turn 65. If you wait longer, there is a financial penalty.

https://www.ssa.gov/medicare/plan/when-to-sign-up

 

[Joylush]

Are you sure about that? Is the gain from the house going to be that big?

It will be a combination of depreciation recapture and capital gain of about 200k. Combined with my rental and investment income which should be somewhere between 100k-150k and being a single filer, I’m going to be in IRMMA territory for sure.

 

[audreyh1]

The Boglehead video today mentioned on IRMAA factor that I had not considered.

One guy said that the market spiked at the end of the year causing his RMD to increase enough to tip him over the IMRAA limit.

That timing seems suspicious. Not his 2023 RMD - that was set Dec 31 2022. His 2024 RMD, maybe, but he doesn’t know the 2026 IRMAA levels yet and has all of 2024 to figure out if he can reduce other income.

I’m skeptical - I suspect the poster doesn’t understand how things work.

 

[Koolau]

WADR, I think the concern over making a mistake projecting IRMAA is exaggerated. The amount of additional premium one pays can be $2k for a couple, but it kicks in with income over $200k. This is not like the ACA where lost subsidy is much greater and income levels lower.

I suppose we could quibble about whether the premium is a big deal or not. Lots of things I could do with an extra (or, more appropriately "retained") $2000.

But to me, it's about avoiding an "unforced error."

 

[CRLLS]

When you stop and think about why IRMMA is 2 years back, it makes sense. Since IRMMA affects 1 year, let's say 2024, it can't look at 2023 income for the limits. They won't be filed until well into 2024. So they have to look back to 2022 income. It feels like it is 2 years back. In reality, it is only 9 months back.

 

[Gumby]

Exactly. The way IRMAA for 2025 will be indexed to inflation is to divide the 12 month average CPI-U ending on August 31, 2024 to the 12 month CPI-U average for 2018 and multiply accordingly, then round to the nearest $1000. So they don't know what the limits will be until about the second week of September 2024, and to decide whether it applies to you, the last AGI income information they have will be your 2022 AGI from your taxes filed in April 2023 (or later with an extension). And they have to have all this done before the beginning of 2025, so they can start taking it out of social security checks.

 

[audreyh1]

When you stop and think about why IRMMA is 2 years back, it makes sense. Since IRMMA affects 1 year, let's say 2024, it can't look at 2023 income for the limits. They won't be filed until well into 2024. So they have to look back to 2022 income. It feels like it is 2 years back. In reality, it is only 9 months back.

Yes, exactly.

 

[Koolau]

When you stop and think about why IRMMA is 2 years back, it makes sense. Since IRMMA affects 1 year, let's say 2024, it can't look at 2023 income for the limits. They won't be filed until well into 2024. So they have to look back to 2022 income. It feels like it is 2 years back. In reality, it is only 9 months back.

While that's very true, you essentially have to start PLANNING (and executing) almost 2 years ahead. IOW (in my case) I usually need a cash infusion almost as soon as the New Year arrives. I'm currently calculating how big that amount will be - taken from my 401(k). Whatever I decide to take in January this year potentially affects IRMAA for 2026.

By now, I know about how my income will go so it's unlikely I'll cross the IRMAA threshold and be surprised. But, that did happen when I sold a personal residence that had been a rental. The recaptured depreciation put me over the IRMAA limit that year. Not by much, but a miss is as good as a mile as they say. Since then, I've been a better planner - but starting almost 2 years ahead. YMMV.

 

[Gumby]

Do you have to take all your draw in January, or could you take half now and half later in the year when you have a better idea how things will go and can adjust as necessary?

 

[CRLLS]

No argument there Koolau. Certainly, for those making some final adjustments in December, the last chance for implementing that planning is only 12+ months ahead. To add insult to injury, in December, we are still working without real figures for 2025.

What is the saying? " Measure with micrometer, mark with chalk, cut with axe". I think somehow it fits here.

 

[Gumby]

.... Unless IRMAA limits can go down ? If we had deflation would they lower it ?
......

Here is the language of the statute --- Social Security Act, Sec. 1839. [42 U.S.C. 1395r]

(i)...

(5) Inflation adjustment.—

(A) In general.—Subject to subparagraph (C), in the case of any calendar year beginning after 2007 (other than 2018 and 2019), each dollar amount in paragraph (2) or (3) shall be increased by an amount equal to—

(i) such dollar amount, multiplied by

(ii) the percentage (if any) by which the average of the Consumer Price Index for all urban consumers (United States city average) for the 12-month period ending with August of the preceding calendar year exceeds such average for the 12-month period ending with August 2006 (or, in the case of a calendar year beginning with 2020, August 2018).

(B) Rounding.—If any dollar amount after being increased under subparagraph (A) or (C) is not a multiple of $1,000, such dollar amount shall be rounded to the nearest multiple of $1,000.

I note that the statutory language speaks only of an increase in the threshold, but given that it is a increased number calculated every year off the numbers in the 2018 base year, it is theoretically possible for the calculation to yield a number lower next year than this year if there is deflation. I don't know how it would be resolved.

 

[TheWizard]

The Boglehead video today mentioned on IRMAA factor that I had not considered.

One guy said that the market spiked at the end of the year causing his RMD to increase enough to tip him over the IMRAA limit.

Horse business.
RMD for 2024 will impact IRMAA for 2026, and the usual source is nowhere close to having IRMAA tier projections at this point.

And most of us who are in IRMAA territory, such as myself, use modest Roth conversions each December to get our MAGI up close to, but not over, the next higher projected IRMAA threshold.

*sigh*

 

[TheWizard]

That's simple to fix if you're 70 ½ or older -- just make a QCD for part of your RMD instead of taking the distribution yourself. That will bring your MAGI down to where you need it.

That's fine if the bulk of your tax-deferred money is in a tIRA.
Most of mine is still in my 403(b).
I am considering rolling more into my Vanguard tIRA next December...

 

[Sunset]

I had posted , but deleted it as I realized I'm still confused by IRMAA.

My analogy:
The road has a speed limit, they post it now and I can drive on the road. If I chose to go over the speed limit, I will pay later some "penalty".

With IRMAA, I have no idea what the limit is for earning in 2024 , so it makes it hard to ensure I don't accidentally speed over the limit and later pay a "penalty".

 

[TheWizard]

I had posted , but deleted it as I realized I'm still confused by IRMAA.

My analogy:
The road has a speed limit, they post it now and I can drive on the road. If I chose to go over the speed limit, I will pay later some "penalty".

With IRMAA, I have no idea what the limit is for earning in 2024 , so it makes it hard to ensure I don't accidentally speed over the limit and later pay a "penalty".

That's why you should check out The Finance Buff's site on this topic.
He's been projecting accurately for years now...

https://thefinancebuff.com/medicare-irmaa-income-brackets.html

 

[RetMD21]

I had posted , but deleted it as I realized I'm still confused by IRMAA.

My analogy:
The road has a speed limit, they post it now and I can drive on the road. If I chose to go over the speed limit, I will pay later some "penalty".

With IRMAA, I have no idea what the limit is for earning in 2024 , so it makes it hard to ensure I don't accidentally speed over the limit and later pay a "penalty".

Yeah we don't find out what the speed limit is until after we have gone by the radar detector but they'll tell us 9 months later then the penalty is assessed starting a few months later

 

[Midpack]

Horse business.
RMD for 2024 will impact IRMAA for 2026, and the usual source is nowhere close to having IRMAA tier projections at this point.

And most of us who are in IRMAA territory, such as myself, use modest Roth conversions each December to get our MAGI up close to, but not over, the next higher projected IRMAA threshold.

*sigh*

+1. I use the limit one year out, knowing that it will be conservative. IOW I kept my 2023 MAGI under the 2024 IRMAA tier. Some money on the table, but going over is costly.

 

[audreyh1]

+1. I use the limit one year out, knowing that it will be conservative. IOW I kept my 2023 MAGI under the 2024 IRMAA tier. Some money on the table, but going over is costly.

Same here.

I have too much unpredictable extra income due to the foreign tax credit which I am starting to despise. I don’t find out what that is until mid-January.

 

[Midpack]

^^^ Every year I wait on foreign tax paid, QBI/Sec 199A, exact QDI - it’s annoying. Along with guessing at IRMAA 2 years out. And NIIT now too. I know, first world problems…

 

[audreyh1]

What’s bad is that you get the foreign tax credit, but you also get assigned more taxable income that you never received (it was the foreign tax paid) except the additional taxable income is a little higher than the credit. And depending on your overall tax situation you might not be able to take the entire credit. And you have to file form 1116.

 

[Tadpole]

Using the 2025 0% inflation estimate, my widower penalty is a IRMAA increase from 1x to 2.6x based on my current estimate of 2023 taxes.

 

[audreyh1]

Using the 2025 0% inflation estimate, my widower penalty is a IRMAA increase from 1x to 2.6x based on my current estimate of 2023 taxes.

Ouch!

 

[Finance Dave]

Regarding the two-year look back: if your income drops below IRMMA levels due to loss of income, it is possible ask for your part premiums to be adjusted. You do that by taking proof of income change to SS office e. This way you do not have to pay the higher IRMMA premiums for 2 years until the auto look back process changes the premiums.

I'm no expert on this (someone correct me if I'm wrong), but I believe the REASON for the change in income is relevant. This affects us this year, as we sold 3 rental properties in 2022, so we have been hit with IIRMA this year.

According to the letter we got from the SSA, it says you can appeal in some circumstances (I won't list them all) such as:

"You our your spouse lost income from income-producing property due to a disaster or other event beyond your control"

In our case, it was due to something within our control...we elected to sell our rentals. Our "artificially" high income in the one year was due to profits on the sales of the 3 properties.

(2) There is even a sentence in the letter that says: "We cannot make a new decision if your income has changed for a reason other than those listed above, such as receiving one-time income from capital gains"

Any thoughts?