IRMAA costs

[Gumby]

But an increase in taxes will drive increased IRA withdrawals leading to an entry into a higher IRMAA bracket, leading to increased IRA withdrawals, leading too.......

I suppose if your only source of funds to pay taxes is your tIRA, that would be true. You could use funds in taxable or from a Roth withdrawal to pay taxes.

 

[marko]

I suppose if your only source of funds to pay taxes is your tIRA, that would be true. You could use funds in taxable or from a Roth withdrawal to pay taxes.

What I mean is covering the spending with monies that are no longer available due to being taken by IRMAA/NIIT.

One would presume that if the first set of withdrawals triggered the IRMAA/NIIT, that there is better than a 50/50 chance that taxable funds (whatever the source) would be also required to cover the spending shortfall.

Otherwise a hefty after tax source wouldn't have started the process in the first place.

 

[Exchme]

Why does it take two years? The IRMAA tax penalty "looks back" at your tax return from two years ago, but it only penalizes you for one year per tax return.

That's actually the most recent data available. They will have to apply a cost in January, 2025, but folks haven't filed their 2024 taxes yet at that point. Filing + extensions go into October, 2025, they use the inflation factors ending in September 2025 and apply that for 2026.

 

[Gumby]

I'm thinking of covering the spending with monies that are no longer available due to being taken by IRMAA/NIIT.

One would presume that if the first set of withdrawals triggered the IRMAA/NIIT, that there is better than a 50/50 chance that taxable funds (whatever the source) would be also required to cover the spending shortfall.

Otherwise a hefty after tax source wouldn't have started the process in the first place.

Good point. And a reminder to me that I should expand my view beyond my own situation. Until this year, I have not needed to take money from my portfolio, because pensions and SS cover our expenses. And this year's withdrawal is only ~0.3% because we took a fancy vacation to Japan with my nephew and his wife and paid for everyone. Assuming we don't replicate that with other of my nephews, the only reason we'll need to withdraw in the future will be when RMDs kick in. I probably will do a Roth conversion or two along the way, but I can adjust that amount as needed to land in the tax sweet spot.

 

[ychuck46]

It would be interesting to see what % of us (ER forum members on Medicare) are affected by IRMAA... Probably more than 7%. Maybe I'll start a poll, or not.

Count my wife and I as two people who have been in the IRMAA hell for the last two years. Thankfully it will be coming to an end starting with our January SS checks. We got into the situation not because we are rich but because I actively traded in the market during the two years prior to our payments in 2023 and 2024, and did not harvest losses. It was painful and cost us an additional $7-8K per year.

 

[marko]

It would be interesting to see what % of us (ER forum members on Medicare) are affected by IRMAA... Probably more than 7%. Maybe I'll start a poll, or not.

As noted above, since I started Medicare 6+ years ago. But I never knew what it was until learning about it here.

 

[phil1ben]

Thank you all. This is very helpful. I just received my Social Security/Medicare verification letter yesterday with benefits to start 2/1/25, which is the month I turn 65. I understand that IRMAA is based on my 2023 tax return. I know I will be subject to IRMAA -- just now trying to calculate which level I am at. I added my AGI from Line 11 of my 2023 return (married filing joint) and added muni bond interest from Line 2(a). So I now have a number representing my AGI + tax exempt interest. A few questions:

1. I understand that capital gains affects MAGI also. What do I add to my AGI (line from tax return) to take this into account? Aren't capital gains/losses already incorporated into AGI?
2. Am I correct that dividends are already included in AGI so I don't need to add them to obtain MAGI.
3. Taking the above into account wouldn't my MAGI just be Line 11(AGI) + tax exempt interest from Line 2(a)?
4. How long after receiving the verification letter does it normally take to receive the IRMAA pre-determination letter?

Thank you.

 

[audreyh1]

Your 2023 AGI already includes your capital gains/losses.

It might take a while to receive the IRMAA verification letter, but don't worry they'll work it out over the next couple of months even if the first month isn't correct. You might have to pay Medicare premiums for the first month (February) because you will receive your first SS check in March for starting benefits in February. The March check is paying you SS for February, but the Medicare premium deduction covers March.

Keep an eye on your Medicare.gov account online and they will show you any additional billing. They may also mail you an initial bill.

One of the odd things is that you won't see any IRMAA portion of the billing until the first month you are actually on Medicare - that is the month you turn 65. And it might be quite late in the month, due the following month. But you see the standard amount as a bill before you start Medicare. They will probably resolve this by adjusting premium deductions in subsequent SS checks.