What to do if you get a social security IRMAA letter
Do you know what IRMAA is and how it may impact your Medicare Part B and Medicare Prescription drug coverage premiums? If you stick around until the end, I’ll tell you 3 things to do to avoid getting hit by IRMAA.
If you are considered a higher income beneficiary, the law requires an adjustment to your monthly Medicare Part B (medical insurance) and Medicare prescription drug coverage premiums. They call it IRMAA.
For those of you who have never seen one, an IRMAA letter looks something like this:
The Income Related Monthly Adjustment Amount (IRMAA) is an additional premium for Medicare Part B and Medicare Prescription Coverage on individual deemed high income earners. The friendly folks at the SSA have determined individuals whose MAGI (adjusted gross income plus tax exempt interest) exceeds $85,000 or married couples (filing jointly) with a MAGI exceeding $170,000 are higher income beneficiaries.
It doesn’t end there. The Individual threshold starts at 85k and then another at 107k, 133,500, 160k, and 500k. Similarly, married couples (filing jointly) start at 170k, then 214, 267k, 320k, and 750k. In essence the more MAGI the more your Part B monthly premium amount is going to be.
The MAGI is determined by the tax return filed two years prior. For example, your Medicare premium in 2021 will be determined by the MAGI in 2019.
For example, Fred, who is single, normally has $80,000 MAGI (adjusted gross income plus tax exempt interest) but this year wants to buy a car and pay off his mortgage by taking out another $85,000 from his IRA. By doing this Fred will find himself categorized as a “higher-income beneficiary” as his MAGI will exceed the $85,000 threshold for individuals. In two years, his social security deposit will shrink and his cost for Medicare Part B coverage will increase by IRMAA.
Not only does Fred have regular income tax on his withdrawal but two years later his part B monthly premium increases from the 2019 standard $135.50 to the standard $135.50 + $297.90 per month. His prescription drug coverage monthly premium increased by $70.90 per month. Note the additional premium is assessed for one year as the MAGI is reviewed annually by the SSA.
For those who don’t know about IRMAA the surprise can be quite unpleasant. Even those who know about it find it’s easy to forget about -remember it comes a couple years after the fact.
Solution
Okay now that we know about it you might wonder if there is anything you can do about it. There are 3 options.
#1 Imagine all the scenarios that exist for families across the nation. There are routine high-income earners, special situation high income, recent widowers, and even those who disagree with their IRMAA determination notice. One solution is to be aware of these thresholds and plan around them when you can.
#2 A second solution is to use a little creativity in the form of delaying that MAGI increasing activity, short-term financing instead of IRA withdrawal or spreading cost over multiple years.
#3 A third solution is to proactively tell the SSA of changes in your income in the past two years. A “Medicare Income-Related Monthly Adjustment Amount – Life-Changing Event” form can be used or you can schedule a meeting with your local Social Security office (1-800-772-1213). Even if you’re not ahead of it you can appeal it with a Request for Reconsideration after you get your IRMAA determination notice. That’s right. You can contact them and share with them the information they don’t know. Perhaps changes such divorce, becoming widowed, lost job, retirement or being part of a disaster beyond your control would alter the outcome. Don’t be afraid to be an advocate for yourself.
We’d love for you to get in touch with our team if you would like to talk about IRMAA. Email shane@advisor.investments
