Annual income vs Medicare costs
 

We are in the planning stages for some retirement income and watched a financial video on YT that alluded to an increase in the cost of medicare depending on your income.

The question I have for you more seasoned folks is, have any of you been on the edge of income where you paid a particular price for medicare one year and then more the next year due to a spike in your income, and then the cost of medicare went back down again the next year because the spike in your income may have been just a one-time thing?

I'm not talking about the government changing the costs, but rather where your individual situation was the catalyst.

Thank you in advance for your informed answers.

For 2023, your Medicare premium is determined based on your MAGI (modified adjusted gross income) for 2021. For 2024, the premium will be based on your MAGI for 2022. So, your Medicare premium, IRMAA adjustment, can change every year if your income changes.

At least for the first year you can file form SSA-44 (Life Changing Event). I just filed it, since this will be my first year on Medicare after retirement.

They use your income from 2 years back. Depends on how much you made at that time.

FL BL or UHC Med Advantage are the best plans!

When I got my letter this year, announcing the 8% increase in Social Security, it also contained an IRMMA determination, that my Medicare Part B increased to $560.50, because I sold some property last year. Capital Gains contribute towards your MAGI (Modified Adjusted Gross Income).

Medicare relies on the last 1040 you filed, to make the determination. When you have a "qualifying life event", you can request a modification and they're pretty good about that. I've had 2 modification in the last 3 years and it didn't take long to get an answer from them.

If you filed individually and reported $97,000 or less in modified adjusted gross income (MAGI) on your 2021 tax return, you won't be charged higher rates for Medicare Part B (medical coverage) and Part D (prescription coverage) in 2023. For joint filers, the income limit is $194,000 or less.Oct 24, 2022

Yes, we did. The first year my husband was on Medicare he was still working. His employer required everyone of Medicare age to take Medicare and they provided a gap plan. His income was well above the threshold and he had to pay a higher premium to Medicare for his coverage. When he retired a year later his income dropped below the threshold and his Medicare premium dropped to the normal cost. We had to do some paperwork to show the reduction in income and that was it.

IRMAA's two-year lookback at your MAGI can cause the income threshold to sneak up on you. Cross it big or cross it by only a tiny amount -- no difference -- IRMAA is lurking there to get you -- two years later.

(I recently read an article that explained IRMAA pretty well. I will see if I can locate it and link it in here later.)

We reach Medicare age at 65, but the age when the RMD kicks in is now 72. (They keep raising the age, so that is good thing for you if you have IRAs.)

There are a couple of things that might help you dodge IRMAA:

If you have IRAs, you might want to look into converting them to Roth IRAs, especially while you are in the years between Medicare and the RMD and have retired to a lower income for a while, with other taxable sources of income outside your tax-deferred accounts.......

It could make sense to take a tax hit earlier in retirement, ahead of the RMD age. If you don't need the income, the conversion to Roth allows your money to continue to grow but withdrawals will not be taxed. If you decide to do this, get the advice of a tax accountant, so you take the steps perfectly. (I did conversions for a while. I regret not doing more of them.)

Once you get to RMD age and find that the RMD is going to cause you to get hit with IRMAA -- and if you are charitably inclined and/or maybe would rather give money away than give it to the government -- you can take your RMD as a QCD (Qualified Charitable Distribution). A QCD has certain steps that must be taken, but when done correctly, the donated amount is not included at all in the AGI. (A QCD must go directly to a qualified charity. It cannot go to a donor-advised fund.)

Disclosure: Take this as a starting point and get advice from a qualified accountant before you do anything. What I am giving you here can be used as a starting point with enough vocabulary and basic info to prepare for a discussion with a professional. For all you know, I could be your old high school English teacher. :)

Boomer

PS: Later, I will try to find that article I mentioned.

Note that the RMD starting age is now 73 for those turning 73 in 2023.

Thanks for the correction, rt123. I was a year behind in the age I put in my post.

Boomer

If you have a good employer health insurance plan in retirement, and you are not required to have Medicare Part B, I would suggest that you do the math to see if Medicare is worth the cost, especially if you are subject to IRMAA. In my case, as a retired Federal employee, Medicare has never been worth cost, so I have never signed up for it. Most of the Medicare Part B benefits are redundant with my Federal insurance plan.

The short answer is yes. Previous replies provide a lot of additional info. Since you are exploring this topic, be sure to go to the SHINE website: SHINE - Home they will give you UNBIASED information on the various healthcare options. Be aware that Villages Health (PCP doctor) ONLY accepts 3 or 4 ADVANTAGE PLANS, to make things very confusing, Villages SPECIALISTS and the local hospitals accept Medicare.
Send me a PM with your phone number if you would like to discuss in detail.

We were in BOTH for a while, had problems with the Villages Health system advantage plans, and had to drop out, get back the regular Medicare and find new Primary Care Physician.

This morning when I pitched in here with a few things I have learned about IRMAA, I said I would look for an article I had read recently, and I would come back and bring it for you.

Here it is:

What Is the Medicare IRMAA, and When Does It Apply? - NerdWallet

Boomer

Medicare income brackets
 

My AGI hit a higher income bracket for 2019, so my Medicare premium was raised after filing my taxes in 2020. The higher premium was charged all through 2021 even though my AGI went back down to the lowest bracket for 2020 and 2021. The premium didn’t go back to the lowest possible until January 2022. So I wound up paying the higher premium for about a year and a half.

My Advice
 

Everyone's personal financial situation is different.

As someone who does retirement income planning and tax preparation my advice would be to work with a qualified professional to come up with your plan.

Tom

Because we both worked in 2022 and had significant income we were assessed an IRMAA penalty for our Medicare premiums for 2023. We appealed that assessment because we no longer have that income and we’re successful in getting it reduced. It was a fairly simple process just filled out some paperwork and dropped it off at Leesburg Social Security office.

I read somewhere that the IRMAA adjustment is a two year thing, not a one year thing. Was that information wrong?

Did your adjustment get approved based on a qualified life changing event (ie marriage, etc)?

Your information is correct. The income reported for 2021 would affect your Medicare premium for 2023. Your 2022 income would not even be known to the IRS until you filed your 2022 tax return on April 15, 2023.

I pay the same income-based percentage for Medicare that I paid when I was working. A benefit of my workplace before I retired is supplemental Blue Cross insurance for $114 a month for the rest of my life. I also pay several hundred a year for vision and dental insurance. Last year I needed two major surgeries, for which I was billed about $140,000. My supplemental insurance and Medicare paid about 10% of that. I paid under $300 total. I’m VERY happy.

It changes yearly due to your AGI for the year they are using.

advantage
 

advantage can limit where you can go like to some specialists

Income tax rates are relatively low right now and that may not always be the case. So, we have been doing accelerated withdrawals out of our IRA's, well above the minimum needed, so we have been really taking it in the shorts on Medicare premiums. The increases are substantial. We won't know for at least a couple more years how automatic the drop back to normal will be.

And those income thresholds I found on the web today are

$97k for an individual and $194k for married creating a part B premium of $164 monthly
$123k single and $246k married part B $231
$153k single and $306 married and part B $329
And a few more thresholds beyond this

The biggest issue most people stumble into is today they are married so income thresholds are not being hit… I.e RMDs and other incomes are say $100k but when a spouse dies, they still are pulling RMDs of $100k but are now over the $97k threshold Triggering IRMAA increases. remember it is a threshold so if you make $97,001 or $122,999 you are into the next bracket…

This year as I am retired, wife is still working and we are selling a rental property, we are already into a higher threshold in 2 years when we start taking Medicare, we will be converting IRAs up to the top of the threshold and to not go over.

Yes exactly what you stated. I made money in the Stock Market in 2020 and boosted my income up Al lot, into another tax bracket. It takes 2 years to have an effect on Medicare cost. My Medicare cost for 2022 went up over $300. Yeah crazy. For 2023 my Medicare cost went down because my income was down for 2021.

If a couple owns assets separately, outside of IRAs, in taxable accounts....

....and one sells something owned individually -- stocks for instance....

....and the sale gets hit with the capital gain tax, causing one to cross the MAGI threshold.....

.....even if you file separately for that year, so one of you can stay under the threshold, as I understand it, IRMAA gets you both.

(I asked an accountant this one a while back. She said that is how it works. Can't dodge IRMAA by filing separately, even if you think you can make the numbers work. I say NO FAIR!

I hope the accountant was wrong, but I doubt it because I think I was making my question very clear. Does anybody here know about that?)

Boomer

I'm not certain, but I think the accountant is correct. Here is a link to the 2023 IRMAA income brackets. Three of the brackets indicate "N/A" under married filing separately.

Why Filing Taxes Separately Could Be A Big Mistake (when on Medicare) — Medicare Mindset, LLC

I don't think any of the IRMAA rules are fair. Some people are paying 3 to 4 times as much for the exact same Medicare coverage. It's like asking you how much money you make when you buy a car, and basing the price on your income.

NO traditional with a supp are much better overall Advantage plans can change drs on you you are locked in if you are certain meds and want to switch back to original If they deciede NO to a surgury and dr says yes you will NOT have that surgery without trying physical theraphy first they are not as good as you think if and whe you need it.........they changed my folks drs all the time and they had to fight every year to stay with them.......

I appreciate your comment. When I go on about taxes -- because I like to -- I always include a disclaimer that says it is possible that I have no idea what I am talking about and professional advice is in order.

You said it so nicely. Classy. So often in threads like this, there are posters who chime in with rude one-liners designed only to try to make those who ask questions feel dumb for asking the gen pop on TOTV about financial matters.

I think threads like this can be really helpful because the informative discussions, that often follow, can give the OP a starting point, along with a working vocabulary, to put together a list of questions for a professional.

It's so much better to pick up what you can and think things through instead of going in cold to meet with an accountant/planner. Being prepared saves meeting time, makes communication better, and is the key to a clear understanding of professional advice.

Some of us TOTVers do what we can to try to help when questions are asked.

Boomer

I would venture that MOST posters on TOTV are helpful when questions or comments are posed.

Nothing new, we have a progressive tax system many are not aware of what that means. In terms of Medicare, those who earn more not only pay more income tax but some do not realize that social security is also a prorated tax.
Those who earn more pay more but the benefit growth is less on every dollar you pay in. Many do not realize that they pay roughly 7% of your gross into social security. You employer has to match what you pay in. I was self employed and paid 13%. It seems the TAXMAN watches me. There is an income
level where you stop paying social security on anything above that. I hit that number several times in 45 years of WORK. Each time I hit it the number was raised. Welcome to reality.

In terms of Medicare, I'm sure you can get the numbers. People who pay the most taxes get to pay almost double for the same Medicare program.

Always been so. People want but think anyone but them should pay for it. True for all INCLUDING ME.

Certainly valid advice. Far as a plan. I am convinced every time I construct a plan BIG BROTHER changes the rules of the game. Most recent, they have AGAIN changed the rules for RMD, required retirement fund withdrawals. The S&P average LOST 18.11% last year 2022. The CPI consumer price index hit 9.1% now about 8.5%. A PLAN?

I tossed many plans when we packed to move. I had one where I figured what I would need to retire. I did it in 1973-4. oops I did not figure taxes or inflation.
All you need to know is when you will die, what will kill you, rate of inflation, taxes and return on investments.

Mom used to say man plans and god laughs.

I wish I had made enough to have maxed out on my Medicare monthly payment...

Are we talking about medicare or medicaid ?
I thought ...
We all paid into medicare. Medicaid is welfare and income based. I won't participate in anyway with medicaid.

Based on? I have found that with the many restrictions on Advantage Plans (e.g., referrals, prior authorizations) and co-pays and the much higher premiums, the only folks the Advantage Plans are best for are the companies selling them. But I'm glad you found a plan that you like. Supplemental Plan G for me.

I have found that the more a product is advertised, the less useful it is. More so when celebrities are involved.

That is exactly how it works. The first income point is $179,000 where if you make more than that your Medicare doubles. If the next year you make less than that it will go back down.

Can you spell Moregan and Moregun.

'if your income is $97,000 or less you pay $164.90. $97,000 - $123,000 you pay $230.80. As you earn more you may move into a new threshold and increase in you monthly payment.