IRMAA crystal ball

S

Sandy & Shirley

Recycles dryer sheets
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Yes, this post is trying to look into the future! So, using a mistake I made in 2020, let me tell you what I did wrong.

IRMAA stands for “Income-Related Monthly Adjustment Amount”. Basically, with a few minor adjustments, this is the number that Social Security uses to compare your Adjusted Gross Income from your 2 year prior tax return to make the adjustment for your Medicare premiums for your current year Social Security Benefits.

In 2020 I thought that was only related to the maximum Roth Conversion that you could make each year, so I did a $98,000 Roth Conversion. Sure enough, in 2022, Social Security changed my monthly Medicare deduction from $170.10 to $442.30 and also started Medicare D deduction of $51.70, a total monthly increase of $323.90 for a total of $3,886.80 increase for the year.

So, in 2022 and 2023, I limited my Roth Conversions to the top end of my 12% Tax Bracket.

Now, in 2024 and the next few years, I want to expand my yearly Roth Conversions to just below the start of the IRMAA Medicare premium increases. I know that they used $103,000 as the max for 2024’s look back to 2022.

So, my crystal ball question is: what is the maximum IRMAA amount that Social Security is going to use in 2026 when they look back at my 2024 Adjusted Gross Income? How much Roth Conversion can I do before they increase my Medicare premiums?

Are these future numbers posted anywhere?
 
No, those numbers aren't posted anywhere because they won't be known exactly until about a year from now, in 2025.
Best thing to do is to use the estimates on The Finance Buff's website.
That's what smart people do...
 
And it's not just your Roth Conversions that matter, it's your total AGI plus any tax-exempt income...
 
I did the same for 2 years conversions of $170K and then got hit with 2 years of higher IRMAAs. For 2023 and 24 I kept MAGI below $190K so I should revert to lower premiums without any IRMAA for 2025.
 
Another pretty safe thing to do is to use this year's numbers, assuming that they will actually be higher in two years.
 
camfused said:
Another pretty safe thing to do is to use this year's numbers, assuming that they will actually be higher in two years.
Click to expand...
That is basically my plan for the next 4 years. Use this year’s number and then give myself a small buffer, 2 or 3 thousand just to be safe.

I am 77, and I am willing to pay the 40.7% marginal tax rate on a few thousand for the next couple of years so that I can start a LTCG harvesting account.

If I invest $5,000 in XYZ and it grows by 20% in 18 months in my IRA, I can sell it for $6,000 and pay full taxes on everything I take out of my IRA.

If I invest $5,000 in XYZ in a standard brokerage account, then sell it for a $1,000 LTCG, my marginal tax rate on the $1,000 will only be 10.2% if I stay in the 12% Tax Bracket, and I can also withdraw the original $5,000 cost basis tax free!

My last job before retirement was a computer geek for a Hedge Fund. I had to sign papers before I started the job stating that I knew it was illegal for me to talk to any of our customers about their taxes.

Now that I am retired, I completely understand why the government does not want investment managers to help hard working retired individuals to understand how the tax system works!
 
camfused said:
Another pretty safe thing to do is to use this year's numbers, assuming that they will actually be higher in two years.
Click to expand...
It may be what you mean as well, but I use the last years number for my working threshold every year, so I am one year behind - not two. e.g. the 2025 IRMAA limits will be announced in the 4th quarter this year (based on 2023 income). That said, the FinanceBuffs projections are the best I know of, so you could hedge closer to their projections without too much risk of going over?
 
I made a huge mistake in 2020 which cost me thousands of dollars. This post was made to verify if there was a way of determining the IRMAA limit that is going to be used two years from now that will effect my Medicare benefits.

The answer seems to be no there is no way to know what that limit will actually be, but there are some reasonable ways to make a good estimate of what the value will be!
 
Midpack said:
It may be what you mean as well, but I use the last years number for my working threshold every year, so I am one year behind - not two. e.g. the 2025 IRMAA limits will be announced in the 4th quarter this year (based on 2023 income). That said, the FinanceBuffs projections are the best I know of, so you could hedge closer to their projections without too much risk of going over?
Click to expand...
Plus FinanceBuff gives a range with the low end at 0% inflation so that’s already quite conservative. That’s generally what I use with still some headroom as some tax things like foreign tax credit and associated extra income I don’t know until later Jan of the following year.
 
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The timing of the announcement for the coming year varies quite a bit, but always in November or December. So there is only a limited time to react and that's a big issue for some.
I always use the FinanceBuff estimate for 0% inflation and sometimes make adjustments in December. When you're looking at thousands of dollars a year, it just makes sense to watch it carefully.
 
Midpack said:
It may be what you mean as well, but I use the last years number for my working threshold every year, so I am one year behind - not two. e.g. the 2025 IRMAA limits will be announced in the 4th quarter this year (based on 2023 income). That said, the FinanceBuffs projections are the best I know of, so you could hedge closer to their projections without too much risk of going over?
Click to expand...
Yes, and you want to leave a little room for the income you can't accurately predict. 1 dollar over and you PAY! Bummer to da max.
 
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