Changes to IRMAA Medicare Premium Surcharges for 2018

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IRMAA, or the Income-Related Monthly Adjustment Amount, is a charge high-income earners pay in addition to their regular monthly premium for Part B (medical coverage) and Part D (drug coverage).  Recent changes have been announced for the coming year based on the passage of the Medicare Access and CHIP Reauthorization Act of 2015. IRMAA affects less than 5% of Medicare beneficiaries, but it is still important to understand these charges as the taxable income used comes from years prior.

Why am I paying IRMAA?

IRMAA is charged if your adjusted gross income is over a certain amount. Right now, that amount is $85,000 for individuals and $170,000 for couples. These amounts can change.  If your income is above this amount, you will pay a surcharge on your Part B and Part D premiums. The surcharge is based on what tier of income you’re in. There are currently four tiers, ranging from tier 1, the lowest surcharge, to tier 4, the highest surcharge.

What is happening to IRMAA in 2018?

In 2018, the tiers will be shifted.  It will be much easier to reach tier 4 and pay the highest surcharge. The defined amounts for tier 2 and tier 3 are being lowered. Some people who would’ve been in the first 3 tiers are now moved into tier 4. For example, in 2017, an individual who made $160,000 would be in tier 3, in 2018, they will be in tier 4.

The surcharge can range from $66.50 monthly to as much as $369.40 monthly. This is in addition to the base premiums already being paid for Part B and Part D coverage.

Can I do anything about IRMAA charges?

IRMAA is based on your taxable income from 2 years ago. In the first months of 2018, 2016 is the last tax return on record. It is possible that your income has decreased in 2 years, usually due to retiring, and for that reason, those affected by this can submit an appeal to request a reduction in IRMAA surcharges.

Besides retirement, you can appeal IRMAA surcharges for other life-changing events. These are defined as:

  • Your marital status has changed
  • You or your spouse have reduced the hours you are working
  • You or your spouse lost property that was producing income due to disaster or other uncontrollable circumstance
  • You or your spouse received a settlement from an employer due to closure, bankruptcy, or organization
  • You or your spouse were scheduled for cessation, termination, or reorganization of an employer’s pension plan

If any of the above applies to you, you may submit Form SSA-44 to request a reduction in IRMAA charges.  The Social Security Administration needs to see documentation verifying the event and the reduction in your income. The documentation you provide should relate to the event and may include a death certificate, a letter from your employer about your retirement, or something similar.

Tax planning is another way to plan to minimize IRMAA surcharges. Retirement withdrawals, like taking money from IRAs or 401(k)’s, can push your income into the IRMAA tiers. These do not qualify as a life-changing event.  Keeping your income below the IRMAA thresholds can be planned for.

Cardinal Advisors can help you with Medicare and tax planning. If you have any questions about IRMAA and how it might affect you, fill out the form below or call us at 919-535-8261.

Hans Scheil is the author of “The Complete Cardinal Guide to Planning for and Living in Retirement” and the accompanying workbook. He can be reached at Hans@CardinalGuide.com.

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Changes to IRMAA Medicare Premium Surcharges for 2018

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Understanding the Upcoming 2026 Income Tax Increase: What You Need to Know

A Brief History of the Tax Cuts and Jobs Act (TCJA)

In today’s Cardinal lesson, we’re discussing the significant changes coming to income tax rates in 2026. This isn’t a proposal but a law already set in motion. The Tax Cuts and Jobs Act (TCJA), passed in 2017 and effective from January 1, 2018, brought about substantial reductions in income taxes. However, these reductions were only funded for eight years, meaning they will expire at the end of 2025.

What Changes to Expect in 2026

As of January 1, 2026, the tax rates will revert to their 2017 levels, adjusted for inflation. Key changes include:

  • The 12% bracket will increase to 15%.
  • The 22% bracket will rise to 25%.
  • The top rate of 37% will revert to 39.6%.

Not Just a Proposal

It’s crucial to understand that this change is already the law. Many people mistakenly believe that the tax rate increases are still under discussion. However, unless Congress enacts new legislation, these higher rates will take effect as scheduled.

Implications for Your Financial Planning

Impact on IRAs and 401(k)s

With the current lower tax rates, now is the time to consider strategies like Roth conversions. By converting funds from a traditional IRA to a Roth IRA now, you can potentially save a significant amount in taxes over the long term.

Why Planning Ahead is Crucial

For individuals with substantial retirement savings, understanding these changes is vital for effective tax planning. The window to take advantage of the current lower tax rates is closing, and planning ahead can make a significant difference.

Case Studies and Planning Opportunities

Hans Scheil and Tom Griffith discuss specific case studies and planning strategies in our latest video. These examples illustrate how different scenarios can be managed effectively:

  • Case Study 1: A married couple with an adjusted gross income of $150,000 in 2024 can convert part of their IRA to a Roth IRA, taking advantage of the lower current tax rates.
  • Case Study 2: High-net-worth individuals with large IRAs can save substantial amounts in taxes by planning conversions over the next two years.

Estate Tax Considerations

The TCJA also doubled the estate tax exemption, which will revert in 2026. This change can significantly impact high-net-worth individuals, making estate planning more crucial than ever.

Action Steps to Take Now

  • Review Your Current Tax Situation: Analyze how the upcoming changes will affect your finances.
  • Consider Roth Conversions: Take advantage of the lower tax rates before they expire.
  • Plan for Estate Taxes: Assess your estate plans in light of the changing exemptions.

Conclusion

The changes coming in 2026 are significant, but with proper planning and informed decision-making, you can navigate these changes effectively. Watch our video for more detailed insights and personalized advice.

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