By: Lynda Tull, Associate Advisor
Have you heard of the IRMAA in regards to your Medicare Part B and Part D premiums? Chances are, if you have then you likely are paying these extra surcharges. These “surcharges” or additional insurance premiums increase your regular Medicare premiums when your Modified Adjusted Gross Income (MAGI) on your tax return exceeds certain thresholds. Your MAGI is made up of your Adjusted Gross Income plus any tax-exempt interest income added back. The IRMAA is a cliff surcharge- meaning if you are $1 (this even could be as little as $0.50 as the tax returns are rounded to the nearest dollar) over the threshold, then you are in the next bracket.
Just remember, the IRMAA or Income Related Monthly Adjustment Amount, is based on your tax return from 2 years prior. If you are married and file a Joint tax return with your spouse- both of you will have an IRMAA. However, if you file as “Married Filing Separate”, you and/or your spouse could end up paying more in IRMAA surcharges due to the income brackets being condensed.
Have you ever wondered what could cause your MAGI to change and result in these extra “premium” payments? What could bump you over to the next bracket or drop you to the bracket below- if you’re close enough to the line? Below are a few items that may increase or decrease your MAGI.
Things that increase your MAGI:
- High Capital Gains
- Large distributions from a taxable retirement account (Traditional IRAs and 401Ks are examples)
- Required Minimum Distributions- these start at age 72 or 70 ½ if you turned 70 ½ before January 1, 2020.
- Higher amount of your Social Security Benefits being taxed
- Taxable amounts of Pension or Annuity payments
- IRA Distributions converted to Roth IRAs (Roth Conversion)
- Other income- a few examples:
- Self-Employment income
- Wages from a job
- Rental income
Things you can do to lower your MAGI:
- Reduce Capital Gains by selling investments that have a loss
- Make Qualified Charitable Distributions (QCDs) from your taxable retirement accounts- can be done starting at age 70 ½
- Use any available Health Savings Accounts (HSA) for Medical bills- prevents having to take out more from Taxable accounts
While it’s good to have some knowledge in IRMAAs, always be sure to talk with your financial advisor and/or tax preparer. They can help you plan and stay informed. While the IRMAA may not be able to be avoided, with planning you may be able to lower it.