What is “IRMAA?”
When spoken aloud, “IRMAA” sounds like it should be a who rather than a what, perhaps an elderly aunt or second cousin. It certainly does not evoke a tiger crouching in the jungle of Medicare waiting to pounce and claw back some of your hard-earned retirement savings. This analogy may be overly dramatic, but for those approaching age 65, “IRMAA,” or Medicare’s Income-Related Monthly Adjustment Amount, is worth considering.
And here’s why. If your current income has dropped dramatically, your Medicare premium may be based on older higher income numbers, causing you to end up paying a substantial Medicare premium that could have been avoided.
Many look forward to Medicare as the time when they will no longer have to worry about health insurance and premiums, but the Social Security Administration (SSA) continues to review your income and will adjust your part B and/or Part D premium upward if your income is above certain levels. The SSA refers to tax returns from two years ago to determine if the Income-Related Monthly Adjustment Amount, colloquially known as “IRMAA,” applies. For example, when you turn 65 and enroll in Medicare, the SSA considers tax returns from when you were 63 to determine if IRMAA applies. IRMAA takes into account your modified adjusted gross income (MAGI) plus other forms of tax-exempt income, such as municipal bond interest.
The Part B and Part D brackets for IRMAA are as follows:
Medicare Part B IRMAA
|Your premium will change based on income as follows:|
|Your annual income||Your monthly premium in 2020|
|Equal to or below $87,000||Equal to or below $174,000||$144.60|
|$87,001 -$109,000||$174,001 – $218,000||$202.40|
|$109,001 – $136,000||$218,001 – $272,000||$289.20|
|$136,001 – $163,000||$272,001 – $326,000||$376|
|$163,001 – $499,999||$326,001 – $749,999||$462.70|
|$500,000 and above||$750,000 and above||$491.60|
Medicare Part D IRMAA
|For 2020, your additional premium based on income is as follows:|
|Your annual income||What you pay monthly in addition to your regular Part D premium|
|Equal to or below $87,000||Equal to or below $174,000||$0|
|$87,001 -$109,000||$174,001 – $218,000||$12.20|
|$109,001 – $136,000||$218,001 – $272,000||$31.50|
|$136,001 – $163,000||$272,001 – $326,000||$50.70|
|$163,001 – $499,999||$326,001 – $749,999||$70|
|$500,000 and above||$750,000 and above||$76.40|
So now that you know what IRMAA is, the question is what can you do about it? There are two ways to lower or avoid IRMAA.
Option No. 1
The first option is that you can appeal your IRMAA if you have had a reduction in income. To request a revised IRMAA decision you need to have experienced a life-changing event that resulted in an income decrease. Social Security considers the following to be life-changing events:
- Death of a spouse
- Loss of income producing property due to disaster or other event beyond your control
- Loss of pension or settlement payment.
You may also make a case that the information the SSA used was outdated or incorrect if you filed an amended return or a more recent tax return shows that you are receiving a lower income than previously reported.
In short, you can get an adjustment if you have had a major life change or if the previous figures used by SSA were incorrect. Unfortunately, this option is not useful for those looking to reduce IRMAA who have not recently experienced a life-changing event.
Option No. 2
The second option is to manage income from investment accounts to avoid triggering unnecessary income. IRMAA is recalculated every year (using 2-year-old tax returns), which means that you can take actions to lower your IRMAA. Income is an important part of any retirement portfolio, but by managing your portfolio, deferring the realization of unnecessary taxable income, and paying attention to the brackets you may reduce your IRMAA. Every investment portfolio is unique, but careful tax planning and blending distributions from tax-deferred retirement accounts with taxable monies to meet your needs can help keep your taxable income, and thus MAGI, lower. In taxable accounts for example, paying attention to turnover (how much a mutual fund buys and sells, which results in distributions) can reduce taxable income, as well as considering how much income in the form of dividends or interest an investment pays out.
In short, through active management of your retirement cashflow, it is possible to tame the IRMAA tiger.
If you’d like to speak with a Roehl & Yi financial advisor about your wealth management and investment strategy, please call 888-683-4343.
Written by: SARAH MELLGREN, JD, CFP®, Roehl & Yi