What is IRMAA?
The Income Related Monthly Adjustment Amount (IRMAA) is an additional premium (aka surcharge, aka more money) you have to pay on top of your Medicare Part B standard premium (currently $170.10) and your Part D premium, if your Modified Adjusted Gross Income (MAGI) exceeds certain income levels. MAGI is your adjusted gross income (AGI – line 11 of your 1040) plus any tax-exempt interest (line 2a of your 1040).
IRMAA (for 2022) starts out at an additional $68/month for Part B and an additional $12.40/month for Part D for married filing jointly earning over $182,000 and less than $228,000. The maximum, per month, is $408.20 and $77.90 for those earning over $750,000. (Note – they are likely not reading this…)
Social Security sends you an IRMAA letter if you are going to owe IRMAA premiums. You will get it soon after Medicare enrollment when you first sign up. You can also get the IRMAA letter late in the year if they will assess you for the next year.
The full breakdown of filing statuses, incomes, and IRMAA premiums is here https://secure.ssa.gov/poms.nsf/lnx/0601101020
Rich or not
Regardless of your actual wealth, Social Security and Medicare will look at the latest income level they have for you from the IRS. Typically, that is from 2 years prior.
You may be rich enough for IRMAA even if you see yourself as a humble retiree just making it. One scenario is right as you retire and your 1040 showed a couple of high (over $182,000) earning years prior to retirement.
Another scenario might be a DIY! You might cause yourself some windfall that places you over the limit by selling an asset or winning a lottery. This could be selling assets that have appreciated (stocks, investment real estate) or taking a large distribution from your 401(k) or IRA.
Some real, painful, cases
One tragic case was when an acquaintance of mine had a family member with cancer. As you may know, medical insurance does not cover everything and this person ended up owing medical providers a significant bill. They took out large sums from their IRA to pay the bill and, bingo, got hit with IRMAA.
In another case, I heard of someone who cashed in an annuity as part of their income plan. They would not need all the money in the current year, but wanted to simplify their investments. Bingo, they hit IRMAA.
In another case, a friend did well income-wise and found out right after retirement and going on Medicare that he would be paying not only Part B, but IRMAA, too!
So, how can I avoid IRMAA – planning
The easiest way to avoid IRMAA is to plan your income. If the income that generated the IRMAA is not as a result of a ‘life changing event’ you are likely going to have to pay the IRMAA. So, let’s look at ways to avoid IRMAA without your life changing. Income and expense planning are your best friends here.
I like to lead with expense planning – find out how much money I will need for the current year, including things like mortgage, Medicare premiums, property taxes, food, gas, and the rest of my expense list. Basically, we build an annual family budget.
Once you know how much you plan to spend, look at where the money is coming from, including regular savings, Social Security, annuities, pensions, and tax-favored money (IRA, 401(k), etc.)
Watch the income at least quarterly so that you know where you are relative to quarterly tax payments, tax rates, and the IRMAA limits throughout the year.
On the income side, remember my friends who cashed in the annuity policy. Their goal was account simplification. Unfortunately, the simplification cost them. Their solution might have been to take the annuity money early in the year and then take smaller amounts from the other accounts as needed to meet their income plan.
The friend with the medical expenses might have been able to do a short term house second mortgage and then pay that off over a few years from their IRA while avoiding the IRMAA limits.
A wish? Wedding, car, trip?
If you know that you will have a large expense coming up that you will be funding, consider increasing your income withdrawals for a year or two prior to the year the money is needed so that you avoid IRMAA each year, but the money is all there the year it is needed.
So, how can I avoid IRMAA – life changing event
From my perspective, the most likely way to be relieved of IRMAA after it has been assessed is to have a ‘life changing event’. If you had a ‘life changing event’ you may be able to appeal. Per Social Security, life changing events include:
A Life-Changing Event (LCE) can be one or more of the following eight events:
Death of spouse (HI 01120.010);
Marriage (HI 01120.015);
Divorce or annulment (HI 01120.020);
Work reduction (HI 01120.025😉
Work stoppage (HI 01120.030);
Loss of income-producing property (HI 01120.035);
Loss of employer pension (HI 01120.040); or
Receipt of settlement payment from a current or former employer (HI 01120.043).
If you have a life changing event, you can appeal to Social Security using a form SSA-44. Work stoppage, such as retirement or being laid off, is a big one. Make sure that you use the Social Security reason first, then amplify as needed. Example – “I had a work stoppage because I retired on May 30th, 2022.”
Remember that if IRMAA is assessed, it will apply to each spouse’s Medicare premiums, if married.
Don’t wait. If you are assessed IRMAA and you can appeal, do so immediately. If you wait you will have to pay the higher premiums until your appeal is approved, then Medicare will not bill you until your overage is cleared. Also, if you wait to long, your appeal may be denied because it was filed too late.
Please share your IRMAA tips in the comments!
Actions you can take include:
If you have not seen the “Why you should read this blog…WIIFY” post, it’s here https://nosurprisesretirement.com/2017/07/09/first-blog-post/
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