My Dad and IRMAA - just over a threshold (probably)

[SecondCor521]

Hi all.

I think I know what to do, but I'm double checking.

My 88 year old Dad has several sources of unavoidable income in 2024: dividends in a taxable account, RMDs, a small pension, and SS. Totaling them all up, they look like they will be about $574 over one of the 2026 IRMAA breakpoints listed at 2024 2025 2026 Medicare Part B IRMAA Premium MAGI Brackets using the 3% inflation column (the rightmost one).

I see these options:

1. "Squeak under the wire" option. Do nothing, hope inflation runs a bit hotter than 3% and that with rounding and what not the threshold ends up being $1K higher than predicted, and he stays in the IRMAA bracket below the threshold.

2. Try to find some way to reduce his AGI. I already took a look at Schedule 1 page 2 (adjustments to income) and none of those apply to him. If I had been more on the ball, I could have done a small QCD, but it's too late for that now. He has no unrealized capital losses currently, and no earned income so no deductible traditional IRA contribution. Not HSA eligible.

3. "Accept our fate" option. Assume that he's going to be just over the IRMAA threshold. If I take this approach, it will probably make sense to do a fairly sizeable Roth conversion. He has a lot of itemized deductions (a ton of medical expenses), so his AGI is "high-ish" but his taxable income is more moderate. He has the cash to pay the taxes on the conversion, it would be at a reasonable-ish rate, and it would modestly help with estate tax exposure because of the taxes paid on the conversion.

4. Other?

He does have dementia and is in relatively poor health for his age, but I know he would prefer that we assume for planning purposes that he will live through the end of 2026 at least, so 2026 IRMAA is still a consideration.

All input and thoughts welcome.

 

[Koolau]

You can write and ask for an exemption. It's not unheard of that they will buy a sob story.

Otherwise - it's just a year that he will pay the extra. An unfortunate incident but probably will not kill his finances going forward. YMMV

 

[audreyh1]

So he’s likely moving from 1.0x to 1.4x Medicare Premium costs? That’s not too painful. The higher tiers are more painful. Maybe he is moving up into one of those - 2.0x, 2.6x, etc.

Sounds like recurring annual income and not a one off situation. That’s tougher to deal with and his situation seems unlikely to fall behind inflation in future years especially RMD %s increasing more aggressively with his age.

Option 3 - reducing future RMD income a bit and also doing QCDs in future years seems like it would help the most. Or just don’t worry about it. It’s a lot of trouble. Will it recoup the expense in terms the estate? Giving money away to reduce Medicare premiums or paying more taxes earlier? If there is a history of regular charitable gifting that’s one thing.

For 2026 IRMAA levels I haven’t used the full 3% inflation assumption for 2025. More like 2-2.5%.

 

[MichaelB]

So he’s likely moving from 1.0x to 1.4x Medicare Premium costs? That’s not too painful. The higher tiers are more painful. Maybe he is moving up into one of those - 2.0x, 2.6x, etc.

Sounds like recurring annual income and not a one off situation. That’s tougher to deal with and seems unlikely to fall behind inflation in future years.

Option 3 - reducing future RMD income a bit and also doing QCDs in future years seems like it would help the most. Or just don’t worry about it. It’s a lot of trouble. Will it recoup the expense in terms the estate? Giving money away to reduce Medicare premiums or paying more taxes earlier? If there is a history of regular charitable gifting that’s one thing.

For 2026 IRMAA levels I haven’t used the full 3% inflation assumption for 2025. More like 2-2.5%.

+1

I also like option 3. Once my income passes a MAGI tier minimum I look for ways to take advantage of the rest of that tier range, Roth conversions seem like a great way to do this.

 

[latexman]

4. Get married?

Idk how far you/he is willing to go to avoid IRMAA. Probably not an acceptable option.

 

[racy]

I pay IRMAA. We've made it financially. I've accepted my fate. I look at it as my contribution to keeping Medicare afloat. It sure is needed by the elderly poor in our community.

 

[pb4uski]

If his RMD is less than 60 days old can you reverse part of it with a rollover contribution and then do a QCD instead?

You could find a way to create a small short term capital loss to squeak under but would the IRMAA cost be less?

1 and 3 aren't really options because you have no choice.

 

[audreyh1]

If his RMD is less than 60 days old can you reverse part of it with a rollover contribution and then do a QCD instead?

You can’t do this. Only the withdrawal exceeding his annual RMD can be rolled over.

 

[RunningBum]

I'd probably do option 3 but I'd look at the marginal rate of doing the Roth conversions. If he is on the brink of going into a higher tax bracket then it probably doesn't save any money.

 

[Ian S]

4. Get married?

Hey, it worked for me! It wasn't the reason for getting married but it was a nice side benefit, I had to apply for an exemption and got it with no problem.

 

[TheWizard]

+1

I also like option 3. Once my income passes a MAGI tier minimum I look for ways to take advantage of the rest of that tier range, Roth conversions seem like a great way to do this.

I agree with the Roth conversion idea. Depending on what tier you're talking about , you can convert $25-30k which will lessen his 2025 RMD a bit. But you have to move quickly.

But if you're just over the $202k threshold for 2026 IRMAA, then you can do a much larger Roth conversion but he'll very soon transition from the 24% Federal bracket into the 32% bracket, along with NIIT, so that's likely not cost effective.

And next year, avoid having him take his entire RMD as normal distributions until you've completed year-end tax planning. That gives room for QCDs to lower his AGI...

 

[TheWizard]

4. Get married?

Idk how far you/he is willing to go to avoid IRMAA. Probably not an acceptable option.

Getting married only works if that person has income that's a chunk lower than his. If the same or higher income, the situation is unchanged at best...

 

[ivinsfan]

I'm going with just live with it. I'm sure your Dad has many areas where he needs your help as he's aging and sounds like this issue is just noise and won't cause him anything but a few bucks.

 

[38Chevy454]

You could find a way to create a small short term capital loss to squeak under but would the IRMAA cost be less?

This might be an option if you only need the $574. The trick is finding the stock that is on a downturn that you can flip quickly by year end.

Otherwise, do some Roth conversion, which doesn't eliminate the IRMAA, but can help with reducing RMD in future years. Of course his age increasing causes a higher RMD factor, so you are chasing a moving target; and the moving IRMAA thresholds.

 

[Sunset]

If his RMD is less than 60 days old can you reverse part of it with a rollover contribution and then do a QCD instead?

You could find a way to create a small short term capital loss to squeak under but would the IRMAA cost be less?

+1

Great idea,
buy a stock and if it falls in next few days sell creating a loss.
If the stock goes up, sell and use the profit to pay off IRMAA

Win either way !

 

[Out-to-Lunch]

If his RMD is less than 60 days old can you reverse part of it with a rollover contribution and then do a QCD instead?

You could find a way to create a small short term capital loss to squeak under but would the IRMAA cost be less?

1 and 3 aren't really options because you have no choice.

+1

Great idea,
buy a stock and if it falls in next few days sell creating a loss.
If the stock goes up, sell and use the profit to pay off IRMAA

Win either way !

Or I was thinking about purchasing options. Get an option with a ridiculous strike price, so you would probably suffer a loss, but if not, you are golden!

And this has the benefit of being sure to be resolved in the relevant time frame, unlike a stock that may just go sideways.

 

[dmpi]

You might be able to find a stock that goes ex-divided. Buy it just before the day, stock should go down. However you will end up with a dividend, but that might go into to next year rather than this year.

 

[rk911]

Donate the RMD's to charity via a QCD.

 

[RunningBum]

Donate the RMD's to charity via a QCD.

Sounds like they already took RMDs so it's too late for this year. You can still do a QCD and it allows money to go out of the IRA and to a charity without being reported as income, but it can't take the place of an RMD already made.

Trying to hit a home run with some risky options might be worthwhile. If they pay off, you have more than enough to pay for the next tier. If not, your income drops below the tier level. Maybe. You really don't know exactly what the income levels for the tiers will be in two years.

 

[audreyh1]

The FinanceBuff estimates are pretty good and he provides a reasonable range.

 

[Koolau]

I pay IRMAA. We've made it financially. I've accepted my fate. I look at it as my contribution to keeping Medicare afloat. It sure is needed by the elderly poor in our community.

Thanks for your contribution!

(Heh, heh, it's looking like I too will blow through the 1.4X cliff this year - IRMAA in 2026.)

 

[harllee]

I just wrote SS asking for an exemption to IRMAA for 2025. The reason my income was high in 2023 was because I had to take money out of my IRA to pay the entrance fee into a CCRC. I probably will not get the exemption but I figured it would not hurt to ask. I will post on the forum when I hear back from SS.

 

[SecondCor521]

Thanks to all for the comments and suggestions and thoughts.

Even though we talk about it a lot (or maybe I just read all the threads because it interests me), the "cliffyness" of IRMAA apparently varies quite a bit in terms of the relative increases in the premium surcharges.

I went and did the math, and in my Dad's case, yes, it's an increase, but the dollar amount isn't really that big in proportion to the rest of his finances. Given that it's not that big of a deal for him, and he's probably over the threshold anyway, I think I will probably do a medium sized Roth conversion to fill up the current tax bracket. If it turns out in 2026 that he was somehow under the limit - his taxes are moderately complicated and $574 isn't that much to be off by - then pushing him over a smallish cliff with the Roth conversion isn't that bad and still might have been a smart move.

He does have mid- to late-stage dementia, and the only woman he would marry lives in Portland, has already turned his proposal of marriage down, and is probably as well off as he is and maybe even more so.

I've never dealt with options and trying to learn and execute something like that correctly in a week or two seems risky.

I would be willing to try the IRMAA appeal, except for me I would have to have at least some rationale for a sob story that I think they might buy. "I wasn't really paying attention and my Dad's four income streams put him just over an IRMAA tier" doesn't really do that in my mind.

Good point about how next year and the years after will play out. His RMD will likely go up multiple $K next year even after the Roth conversion because the divisor is smaller and his traditional IRA went up in value this year. So his 2025/2027 IRMAA situation will not even be close to the threshold that is in play this year. Next year would then just be a smaller Roth conversion to the top of the same tax bracket most likely.

The thinking on the Roth conversion is that the money has to come out of the traditional IRA at someone's marginal rate, either my Dad's or an average of my siblings and mine. Because of his large medical deductions, his rate is likely a bit lower or at least on the low end, so the Roth conversion means a bit of tax arbitrage (maybe a few percentage points). The taxes paid on the Roth conversion from his taxable just lowers his taxable estate by that amount - not much in the big scheme of things but still directionally correct.

QCDs I would have to discuss with my siblings. I manage my Dad's finances but with the fiduciary obligation embedded in the POA I wouldn't feel right giving away a portion of their inheritance (regardless of the relative size) without advance discussion. Also, I'm supposed to manage his money per his wishes and I'm not 100% sure what his charitable preferences would be. He was quite charitable throughout his adult life but became less so in the last few years (possibly dementia related, who knows).

Being FIREd, I have time to handle this and his other needs that arise. He's in memory care so they do most of the heavy lifting.

 

[harllee]

If you do write a sob story letter to the IRS to try to get an exception to IRMAA, I would base it on the fact that your father has dementia and in memory care and that you as POA were trying to help him but you did not have sufficient info to stay under the IRMAA limit etc. My mother has dementia and I have been able to get penalties and interest waived by writing letters to the IRS blaming her nonpayment of taxes on her dementia etc and those letters worked. The IRS seems to have some sympathy for dementia patients, maybe SS does too.

 

[Sunset]

Buying the stock at 10 am would have been great today for anyone looking for a loss...