How to Avoid an IRMAA Medicare Premium Surcharge 2018

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Modern public policy has painted a bullseye on the pockets of the wealthy and productive. There is an unhealthy assumption that the wealthy don’t deserve their money, spend the wealth they have extravagantly on themselves, and are greedy and uncharitable. In reality, most of these targeted individuals are everyday millionaires next door. They come from hardworking families. They are frugal. They don’t buy expensive shoes or designer suits. Instead, they take their lunch in a brown paper bag and repair their shoes with duct tape. Yet they are very generous and represent most of the charitable giving.

Sadly, the public policy target ends up hurting these people anyway.

In 2018, the standard Medicare Part B premium is $134 per month. However, if your modified adjusted gross income (MAGI) from 2 years ago is above a certain amount, you are faced with an Income Related Monthly Adjustment Amount (IRMAA). This IRMAA is a surcharge you must pay in addition to the standard premium.

 2018 IRMAA Medicare Premium Surcharge Rates

MAGI in 2016 was lower or equal to You pay each month in 2018 Surcharge
Individual Joint
$85,000 $170,000 $134 $0
$107,000 $214,000 $187.50 $53.50
$133,500 $267,000 $267.90 $133.90
$160,000 $320,000 $348.30 $214.30
above $160,000 above $320,000 $428.60 $294.60

 

When you are faced with an IRMAA surcharge, you receive an Initial IRMAA Determination Notice from the Social Security Administration (SSA) in the mail. People doing large Roth conversions all in one year or retiring at or after age 63 tend to get hit with the surcharges even though their current MAGI would not qualify them.

To avoid getting issued an IRMAA, you can proactively tell the SSA of any changes your income has seen in the past two years using a “Medicare Income-Related Monthly Adjustment Amount – Life-Changing Event” form or by scheduling an interview with your local Social Security office (1-800-772-1213).

Most people working at age 63 need to use the form to report their “Work Stoppage.”

Reporting a temporary MAGI increase from a Roth conversion should likely be done in person.

In the “Sample Annual Income-Related Monthly Adjustment Amount (IRMAA) Notice” the SSA writes:

MAGI may include one-time only income, such as capital gains, the sale of property, withdrawals from an Individual Retirement Account (IRA) or conversion from a traditional IRA to a Roth IRA. One-time income will affect your Medicare premium for only one year.

In some situations, we can make a new decision about your income-related monthly adjustment amounts. Contact us to request a new decision if your MAGI has gone down at least one range in the table above or has gone below the lowest amounts in the table since you filed your 20xx tax return, AND the decrease in MAGI was caused by any of the following life-changing events:

  • You married,
  • You divorced, or your marriage was annulled,
  • You became a widow or widower,
  • You or your spouse stopped working or reduced work hours,
  • You or your spouse lost income-producing property due to a disaster or other event beyond your control,
  • You or your spouse experienced a scheduled cessation, termination, or reorganization of an employer’s pension plan, or
  • You or your spouse received a settlement from an employer or former employer because of the employer’s closure, bankruptcy or reorganization.

We will use the new lower MAGI to see if we can make a new decision about your income related monthly adjustment amounts. We cannot make a new decision if your income has changed for a reason other than those listed above, such as receiving one-time income from capital gains.

You will need to submit proof of the event listed above that caused your income to go down (such as a death certificate, a letter from your pension fund administrator, or a letter from your employer about your retirement).

That is their official policy: no reconsideration for one-time income changes. However, we have anecdotal stories of clients asking for the IRMAA to be reconsidered because of a Roth conversion and the SSA doing so.

For a large Roth conversion, you can explain that the conversion income on your tax return isn’t money that you can spend because it is in your Roth IRA. If you did a total conversion, you can explain that you don’t have any traditional IRA assets any more and won’t have that income on any future returns. If you were doing a relief cut conversion, you can explain that later Roth conversions will be much smaller.

Depending on your particular case and Social Security agent, you may get your surcharge waived, lowered, or upheld.

If you skip the proactive notification of a life changing event, you instead have to “Question the Determination” and go through a “Reconsideration Process” after the fact to get out of the surcharge.

Photo by Ronald Cuyan on Unsplash

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Megan Russell has worked with Marotta Wealth Management since 2005. She loves to find ways to make the complexities of financial planning accessible to everyone. Her most popular post: The Complete Guide to Your Washing Machine