FREE NEWSLETTER
MY HUSBAND AND I are planners. We can tell you where we’ll be living 15 years from now, the trip we plan to take in 2022 and how much we’ll likely pay in taxes this year.
What we didn’t plan for: Paying more for Medicare—a lot more.
If you’re covered by Medicare, you’ll likely know that this year you pay $148.50 in monthly premiums for Medicare Part B, plus a premium for the Part D prescription drug benefit, which is $51.20 a month each for my husband and me. What you may not realize is that if you have a good year financially—in our case, we sold a piece of real estate—you may pay quite a bit more.
The Social Security Administration calls this IRMAA, short for income-related monthly adjustment amount, and it hinges on your tax return from two years earlier. IRMAA is determined by taking your adjusted gross income and adding your tax-exempt interest. In the notice you get from the Social Security Administration, this amount is referred to as your modified adjusted gross income (MAGI).
If your MAGI in 2019 was $88,000 or more and you’re single, or $176,000 and above and you’re married, you’ll pay more in Medicare premiums in 2021. The Part B and Part D combined monthly surcharge can be anywhere from $71.70 to $433.50—and that’s only for one of you. A married couple could be paying an additional $867 every month, equal to more than $10,000 a year. Your surcharge is recalculated each year.
I know what you’re probably thinking. Should someone who benefited from a good financial year be whining? Perhaps not. But for us, it was more the element of surprise. The planners in us asked, “How could we have done this differently?”
Could we have sold the property before we were eligible for Medicare? Doubtful. Could we have worked with the buyer to be paid over a period of years? Maybe. Although we knew there would be Medicare premium adjustments at a certain income level, we had no idea it would be so much.
In a phone conversation my husband had with Medicare, the representative told him to fill out Form SSA-44, which you can use to request a reduction in your IRMAA surcharge if you were subject to certain life-changing events. These events include the following:
No, our long-term capital gain didn’t qualify.
While we were delving into the ins and outs of IRMAA, we realized another surprise will eventually come our way. What will happen to our tax bill when one of us is no longer here? If our income remains the same but one of us is now filing as a single individual rather than as a couple, the surviving spouse will likely be in a higher tax bracket and face a much steeper tax bill.
Just something to think about and plan for. What’s the old saying? Forewarned is forearmed.
Sonja Haggert’s previous articles include Friend Requests, Right Turn and Getting Used. She’s the author of Invest, Reinvest, Rest. You can learn more at SonjaHaggert.com. Follow her on Twitter @SonjaHaggert.
Want to receive our weekly newsletter? Sign up now. How about our daily alert about the site's latest posts? Join the list.
Welcome to the club. Seems your crystal ball overlooked a key element in retirement planning, ALL health related costs. There is no escape from the IRMAA.. Wait until you get to RMDs. And, not even tax-free income escapes MAGI.
Richard- Wouldn’t having most of the funds in a Roth 401k or IRA mitigate the RMDs? I know I’ll still have pensions, social security, etc, but seems like a compelling case for Roth conversions.
As long as you do the Roth conversions before age 63. (The 2-year lookback). Otherwise the conversions trigger income that can push you into the IRMAA-zone.
In another year IRMAA is assessed again, I believe, and it won’t include that capital gain.
That’s correct.
I don’t understand IRMAA is assessed again and won’t include capital gains.
IRMAA is based on your income from two years earlier. If you have realized capital gains in that year, it’ll be factored in,
Wow. And ouch. Thanks for this!
Any good reading recommendations for those approaching Medicare eligibility?
If you haven’t read it, you should check out James McGlynn’s article from last year: https://humbledollar.com/2020/01/danger-cliff-ahead/
That’s super helpful, thanks Jonathan. I’m looking for something more, to help me ponder Medicare and other post-retirement health insurance and care options with a wider lens. Outside of COBRA for one of our kids, I’ve yet to buy private health insurance beyond an employer offering so pretty clueless on the topic.
I found Phillip Moeller’s “Get what’s yours for Medicare” to be a very helpful guide in sorting some of the intricacies of Medicare, as well as health insurance in general. I had to help my mom sort through some issues with drug formularies and such, which is a potentially whole new can of worms, and I found his book very informative on this and a whole host of health insurance-related topics.
He also co-authors at least one other “Get What’s Yours” tome, this one about Social Security, and I can also recommend it for those of us who want to plan to make the most of this all-important retirement income source.
My wife and I both retired in 2019 and closed on the sale of our house in mid December of that year. We were recently informed that we would both be in the top IRMAA bracket in 2021, but expect that to change after our SSA-44s are processed. In fact, because we didn’t have to take RMDs in 2020, we may not have to pay any monthly adjustment amounts in 2021. Our low AGI in 2020 also means that we will not have to pay an income-related adjustment in 2022. After that we will probably be in the second IRMAA bracket.
It also appears that not taking RMDs in 2020 will make us eligible for the new stimulus payment which the new administration may raise to $2,000. Because the stimulus isn’t intended for folks like us, we intend to donate it the local food bank.
That would be insane. A bird in the hand is worth a one-year IRMAA increase.
Yep, I tell folks about the surcharge on Medicare and most say that’s not fair. But, I understand if you make more, you should pay more. Unless a person earns a huge amount, then they pay very little it seems. It’s part of the certainties in the world.. DEATH AND ?
perhaps the very definition of rich people’s problems