If you are on Medicare and have a relatively high income, IRMAA matters to you. IRMAA, or Income Related Monthly Adjustment Amount, is basically a Medicare tax for the affluent. For people who fall into IRMAA, they pay a surcharge on their Medicare Part B and Part D monthly premiums.
Qualification for IRMAA
Qualifying for IRMAA is based on your MAGI, or modified adjusted gross income, from 2 years prior. That means, in 2020, your income for IRMAA qualification will be based on your 2018 tax returns. If your tax return shows that you are making over a certain amount of money, you will pay IRMAA. If you are a single filer in 2020 and make over $87,000 or if you are a married filing jointly filer and make over $174,000 you will have to pay IRMAA.
Social Security will send you an Initial IRMAA Determination Notice in the mail to let you know if IRMAA will apply to you. Then, if you are paying IRMAA, every November you will get another letter from Social Security notifying you of any adjustments for IRMAA in the new year.
Cost of IRMAA
IRMAA is tiered, so the amount you will pay will depend on what tier you fall into. The chart below breaks that down. Do know, it is all or nothing with the tiers, so if you make a dollar more and get bumped into a higher tier, you will pay the full amount.
6As you can see, IRMAA is paid in addition to both the standard Part B monthly premium, which in 2020 is $144.60/month, and your Part D premium, which will vary by the plan you pick (the average premium for Part D in 2020 is $32.74/month). For some people, especially spouses who are both on Medicare, the IRMAA surcharge could be over $10,000/year.
Appealing and Avoiding IRMAA
If your income has changed significantly in the past 2 years, there is a way to appeal it. Form SSA-44 allows beneficiaries to appeal IRMAA for a “life-changing event”. For most people, this is going to mean retirement. Other situations that might allow for this appeal include death of a spouse, marriage, and divorce.
For example, Frank, one of our clients, sold his veterinary practice in 2009 and went to work for a large pet store chain. Frank’s income in 2018 was $250,000 because they were working him 60-70 hours per week. In mid 2019, Frank opened his own veterinary hospital and anticipated netting $50,000- $75,000 from his new business. He turned 65 in January 2020, signed up for Medicare Parts A, B, and D, as well as a Medicare Supplement from one of the companies Cardinal represents. His IRMAA letter from Medicare just arrived and he was upset. Instead of $144.0 for Part B, Medicare is now charging him $462.70 due to IRMAA. IRMAA also added $70 monthly to Frank’s Part D premium. We are now helping Frank appeal IRMAA due to his significant change in income from 2018 to 2019.
Frank was able to appeal IRMAA due to the fact that his income dropped. If you have a consistently high income in retirement you will not be able to appeal IRMAA, but there are strategies you can put into place to reduce your taxable income. The best strategy is to shift income to tax exempt vehicles like Roth IRAs and life insurance with a cash value.
While we can help you with these strategies, do keep in mind that if you fall into one of these higher tiers, IRMAA is probably not the most important thing you need to plan for. While it is a significant amount of money, you are receiving great healthcare coverage in return. Long term care, which is not covered by Medicare, will wipe out your savings much quicker than IRMAA will. Make sure to have a plan for this, even if the plan is just a plan for self-insurance. Cardinal can help you with all your retirement planning needs, from Medicare and Social Security, to long term care and taxes!