Jun 01, 2021
By Sarah Specht, CFP®, Investment Advisor Representative at World Trend Financial
Chances are, if you are under age 65, or have never helped anyone with their Medicare enrollment, you have not yet met IRMAA. IRMAA is short for Income-Related Monthly Adjustment Amount. Higher income earners must pay more for Medicare Part B and Part D. It applies to you even if you do not choose original Medicare and purchase a Medicare Advantage plan instead.
How IRMAA is calculated
Your Medicare Part B and Part D premiums are based on your modified adjusted gross income (MAGI) that is reported on your IRS income tax return from two years prior. For example, your 2021 Medicare Part B premiums will be based on your reported MAGI for 2019. If your MAGI is $88,000 or less for single and married filing separately, or $176,000 or less for married filing jointly, there is no IRMAA. You would pay $148.50 for Part B and whatever your Part D prescription coverage premium is. However, if your MAGI is just $1 more than the limits noted above, IRMAA applies.
How much is IRMAA?
In 2021, the IRMAA ranges from an additional Part B premium of $59.40 per month (total Part B premium of $207.90) up to an additional Part B premium of $297 per month (total Part B premium of $504.90). The Part D IRMAA ranges from $12.30 to $77.10 per month. The IRMAA amounts are assessed to both spouses on Medicare, individually.
What is included in MAGI for IRMAA determination?
According to ssa.gov, MAGI is the sum of your adjusted gross income (AGI) found on line 11 of Form 1040 plus all tax-exempt interest income (line 2a of Form 1040).
A couple of items to consider – appeal and ROTH conversions
If you have a life changing event causing a significant reduction in MAGI, you may file an appeal with the SSA. This will allow a new initial determination using a more recent tax year than was used in order to reduce or eliminate IRMAA. There are eight events that qualify for an appeal:
- Death of a spouse
- Divorce or annulment
- Work Reduction
- Work Stoppage
- Loss of Income Producing Property
- Loss or deduction of pension income
- Receipt of employer settlement payment
Backdoor ROTH conversions are a popular method of reducing future RMDs and income taxes when in retirement. However, if you are 63 years or older, be mindful of where you are on the IRMAA income chart. ROTH conversions are considered part of your MAGI.
Please reach out to Sarah at firstname.lastname@example.org to discuss your specific circumstances. You may also contact any of the accountants at Terry Lockridge & Dunn or the investment advisor representatives at World Trend Financial. They can be reached at 319-364-2945 in Cedar Rapids, or 319-339-4884 in Iowa City.