Imagine getting a bill based on your activity from two years ago. That’s what happens to many seniors when suddenly their Medicare premiums increase with Income-Related Monthly Adjustment Amounts.
Generally, Medicare Part B, which covers doctor’s visits, outpatient services and durable medical equipment, is a standard cost of $170.10 for 2022. It is generally deducted from your Social Security benefit. Income-Related Monthly Adjustment Amounts (IRMAA) kick in when your modified adjusted gross income (MAGI) reaches $91,000 for single and $182,000 for married filing jointly.
Medicare recipients with income above these thresholds will receive a notice from the Social Security Administration informing them that they are being assessed an IRMAA. Adjustments begin at $68 per month and increase in five brackets up to an additional $408.20 a month for those with MAGI more than $500,000 for single and $750,000 for married filing jointly. Furthermore, an adjustment is also added to your Medicare Part D, prescription drug coverage.
The sticky wicket is that the Social Security Administration looks at your reported income from two years ago. For 2022, they’re looking at your MAGI from 2020 as reported by the IRS. For IRMAA calculations, your MAGI adds back deductions for student loan interest, IRA contributions, passive income loss, tuition and fees deductions and taxable social security payments.
One of the main reasons investors are subject to IRMAA is because they began required minimum distributions. Let’s say both you and your spouse began required minimum distributions in 2020, increasing your income more than $60,000 a year to bring your MAGI to more than $228,000 MFJ. You and your spouse may each pay an additional $170.10 per month more for your Medicare premiums. Yes, that is more than $4,082 a year, but your income is at least $60,000 more. Very few investors would be willing to sacrifice $60,000 in income just to avoid paying $4,082 more.
You may also be subject to IRMAA because of capital gains. Many mutual funds distribute capital gains or dividends at the end of the year. As a result, investors can unknowingly earn more income and find out years later that they’re subject to higher Medicare premiums. Thankfully, the SSA reassesses income-related premiums on an annual basis.
If you’ve experienced a major life event like marriage, divorce, death of a spouse, or loss of income from work, income properties, or pensions, you may be able to request an appeal to reconsider your IRMAA if your current income does not support the income-related increase.
The only way to avoid IRMAA altogether is to not use Medicare Part B or Part D; however, that is rarely an affordable option. If your income is near the beginning thresholds for income-related adjustments, you may consider working with your tax adviser on ways to lower your MAGI. You may want to work closely with a tax planner or financial adviser if you have a substantial increase in investment income or have plans to withdraw money from your retirement accounts.
If you have questions on any income-related monthly adjustment amounts you may be subject to, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Listen to the February 26, 2022 “Henssler Money Talks” episode.
This article is for demonstrative and academic purposes and is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
