Planning around Income-Related Monthly Adjustment Amount (“IRMAA”) surcharges have become more important as the Medicare premium increase amount has grown in recent years. While on the surface the concept is pretty straightforward, there are a few issues that can cause an unexpected wrinkle for our clients. It can be difficult to avoid pitfalls and to recognize when a client may be able to request an exception from the IRMAA surcharge.
To help make this easier, we have created the “Will I Avoid IRMAA Surcharges On Medicare Part B & Part D” flowchart. It addresses some of the most common issues that arise for a client on Medicare, including:
IRMAA surcharges for Part B and Part D based on MAGI ranges
Situations to request an exception and the form to complete
Relevant tax year for the surcharge calculation
Hi, Todd Pouliot, www.mygatewaymoney.com to visit us and send us a request if you'd like a copy of the flowchart we're going to cover today. The reason why I'm doing this flowchart today is that near the end of the year we like to do tax planning and we're doing tax planning for the end of the year for Roth conversions or looking at capital gains and losses, and how we can best help our client. And, the reason why this one is so impactful is that when you make decisions as a financial planner, you have to understand how much tax has a very large impact on what happens. So recently, I've met with a client who is new to us and they did a rather large Roth conversion and realized some income tax ramifications but they didn't realize IRMAA. IRMAA is an income-related monthly adjustment amount and we don't talk about IRMAA – here in Ohio we talk about RITA, which is a regional income tax authority but we don't talk about IRMAA as much as we should. But, you need to make sure financial planning is also done with tax planning and I'm going to go through this flow chart and explain it to you and why it's so important. Although they call it a premium, I tend to call it a tax because basically, that's what it is to me. So, IRMAA – we're going to look at, “Will I Avoid IRMAA Surcharges On Medicare Part B And Part D?” So, planning around income-related monthly adjustment amount – again, IRMAA, that's why we say IRMAA instead of that long word there. Surcharges become more important as the Medicare premium increase amount has grown in recent years. While on the surface the concept is pretty straightforward, there are a few issues that can cause an unexpected wrinkle in our clients. It can be difficult to avoid pitfalls and recognize when a client may be able to request an exemption to the IRMAA surcharges. So, we have this flow chart here – we're going to cover a few issues – IRMAA surcharges obviously, for Medicare Part B and Part D based on modified adjusted gross income ranges. And, again, situations to request an exemption and the form that you need to complete. Again, we've had clients do this in the past successfully and it does take some work. Sometimes it's very easy and sometimes it is very difficult. And, the relevant tax year for the surcharge calculation. So, I'm going to, as I always do, share my screen with you and show you exactly what we're talking about with this flowchart. Again, very impactful the biggest thing that we want to think about is the tax planning that you're doing this year, and here we are in 2022, which will affect 2024. There's always a two-year look back. So, any decision that you made today, and for the client in particular for the issue that they have for 2021, they're not feeling the pain yet in 2022 but they're going to feel the pain in 2023. So, the first thing you want to look at – that these numbers are adjusted for 2022. We already have calculations in our software for 2023 but I just want to be very concise that, here we are in 2022. Does your modified adjusted gross income exceed 91,000 or 182,000 based on the prior-prior year? So, that would be 2020. Again, so 2022, any decisions that we make in the prior-prior year, would mean for 2024. So, this is very simple if you're below these numbers, the premium is a hundred and seventy dollars and 10 cents per month. If you did, your modified adjusted gross income, again that's why we want to see your 1040, we want to know what that is exactly. It's very different than your adjusted gross income. If the answer is yes, have you or your spouse experienced a life-changing event that has significantly reduced your income? If the answer is yes, you can try requesting an exemption by filing form SSA44. We've had several clients look at that form, fill that form out, and some have been successful and some have not. If you do not know, life-changing event includes marriage, divorce, widowing, retirement, layoffs, loss of pension, or income-producing property. So, those are the life-changing events, and that again is – to fill out that form SSA44. If you have not, I'm sorry you are going to be subject to those charges and those premium charges. Again, what's your modified adjusted gross income from the prior year? Was it within these windows? Again, the surcharge can be 68 dollars a month and part D it's 12 dollars and 40 cents a month if you're within these brackets. Again, that's monthly, so when I tell you it's a tax, I strongly believe those premiums are a tax, they're just using a different word. And, again, if you're within these brackets look at the surcharge increases. Boy, 170 dollars per month plus if you add that 32, you're over 200 dollars additional per month in medicare premiums. I'm going to move on to the next bracket, 272 dollars per month, and Part D would be 51 dollars a month. And, again, here if we're above the 500,000 single and 750 – again, massive increases. Again, the surcharges double for married filing jointly couple. Again, I think this is a tax, they’re calling it a premium, you can call it whatever you want but these are payments that are going to come out and that is going to ultimately reduce the assets that you have on hand that you can use to live in a comfortable retirement. Retiring with dignity but also being able to stay retired with dignity is how I like to put it. So again, I think this is a very valuable lesson for people that are doing tax planning but the problem that I see is people are making decisions, “Oh, you need to do a Roth conversion – oh you need to do this – you need to move income around.” Understand that those income brackets can drastically affect how much premium payments you're paying for Medicare Part B and Medicare Part D. So, we want to thank you again for coming. Thumbs-up to those that like this video. I think this is a very relevant video you need to look at that two years – prior-prior, so go back two years and say, “Hey, what am I going to be paying?” When you're doing the decisions this year, look ahead two years, “What is my cash flow going to look like?” So 2022, “What is my cash flow going to look like for 2024?” Major impacts on retirement and I just want you all to be aware of how important that is. Subscribe, we appreciate you coming back and sharing our videos with others and I want to thank you, and have a great day.