Healthcare costs in retirement can make up a significant portion of a retiree’s budget. Fortunately, most individuals age 65 and above qualify for Medicare, which can aid in providing stability in your health insurance coverage and expected out of pocket costs. Some Medicare enrollees may find that their monthly premiums are higher, however, as they are based on one’s level of income. This surcharge is referred to as Medicare’s Income-Related Monthly Adjustment Amount, or IRMAA.
While Medicare Part A, or hospital insurance premiums are covered in full by the federal government, Part B – medical insurance and Part D – prescription drug coverage premiums are adjusted for high income individuals. The thresholds are determined by the taxpayer’s modified adjusted gross income (MAGI).
|IRMAA Tier – 2019 (based on 2017 tax return)||Individual MAGI||Married Joint MAGI||Part B Monthly Premium||Part D Monthly Premium|
|Baseline||$85,000 or less||$170,000 or less||$135.50||Plan Premium|
|1||$85,001- $107,000||$170,001 -$214,000||$189.60||Plan premium + $12.40|
|2||$107,001-$133,500||$214,001-$267,000||$270.90||Plan premium +|
|3||$133,501-$160,000||$267,001-$320,000||$352.20||Plan premium + $51.40|
|4||$160,001-$500,000||$320,001-$750,000||$433.40||Plan premium + $70.90|
|5||$500,001 and above||$750,001 and above||$460.50||Plan premium + $77.40|
Each of the IRMAA tiers is a ‘cliff threshold’, meaning that one dollar in additional income results in moving to the next tier, causing a higher surcharge to apply. To add another layer of complexity, the Social Security Administration (SSA) determines if an IRMAA is owed based on income reported on your tax return 2 years prior. For example, your 2019 Medicare premium will be determined by your 2017 modified adjusted gross income. The SSA will notify you if they determine you should pay an IRMAA.
In some cases, this determination can be appealed if a life changing event occurs that causes income to increase or decrease. The appeals process begins with filing Form SSA-44. The SSA considers life changing events such as the death of a spouse, marriage or divorce, retirement or the reduction in number of hours worked, the loss of a pension, and others. A one time boost in income such as selling an investment property, a large portfolio withdrawal or Roth conversion would not qualify as a life changing event, so it is important to plan such events accordingly.
The importance of proper income planning in retirement cannot be emphasized enough. Withdrawals from retirement accounts not only effect your overall tax picture but flow through to many other areas of your financial life. In some cases, between social security benefits, pension income, and required minimum distributions IRMAA surcharges are unavoidable, but in others, proper retirement income planning can result in significant monthly savings by remaining below the IRMAA tier thresholds.
Have you considered how your next dollar of income will affect your Medicare premium?