Medicare IRMAA

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Bob
Posts: 173
Joined: Mon Feb 26, 2007 5:15 pm

Medicare IRMAA

Post by Bob » Tue Mar 06, 2018 1:05 pm

I am trying to understand how Medicare IRMAA (Income Related Income Adjustment Amounts) would work in the following case:

1) We have a lot of U.S. EE Savings Bonds where we have deferred paying tax on their annual interest until they will mature in 2022. So in 2022 we will have a 'huge' amount of interest income from them which will push our Medicare MAGI over the IRMAA (Income Related Income Adjustment Amounts) limits and drive up our Medicare premium.

2) I understand Medicare determines one's IRMAA added premiums based on one's MAGI from two years prior, so that will impact 2024's premiums. In 2024 our expected income will be far below where IRMAA kicks in.

3) Lastly, I understand one can petition Medicare and ask for one's IRMAA added premium to be waved if your current income is no longer as high as 2 years ago. And in 2024 that will be our situation. The EE bond interest is w one time thing.

So question is: in the above situation would be we able to avoid the IRMAA added premiums in 2024?

User avatar
Artsdoctor
Posts: 3297
Joined: Thu Jun 28, 2012 3:09 pm
Location: Los Angeles, CA

Re: Medicare IRMAA

Post by Artsdoctor » Tue Mar 06, 2018 2:08 pm

No. Medicare has specific requirements for "life changing events" which may reduce your Medicare premiums. You can find the information here:

https://www.hhs.gov/about/agencies/omha ... index.html

Bob
Posts: 173
Joined: Mon Feb 26, 2007 5:15 pm

Re: Medicare IRMAA

Post by Bob » Tue Mar 06, 2018 2:30 pm

Artsdoctor wrote:
Tue Mar 06, 2018 2:08 pm
No. Medicare has specific requirements for "life changing events" which may reduce your Medicare premiums. You can find the information here:

https://www.hhs.gov/about/agencies/omha ... index.html
Thank you for the link and its clarification. I expected I was too optimistic and now I know I was. :oops:

User avatar
plannerman
Posts: 671
Joined: Wed Feb 21, 2007 10:42 pm
Location: NC Mountains

Re: Medicare IRMAA

Post by plannerman » Tue Mar 06, 2018 7:29 pm

Can't you simply wait until 2024 to cash them in. Or just cash in enough in 2022 and '23 to get you up to the IRMAA cliff.

plannerman

kaneohe
Posts: 4734
Joined: Mon Sep 22, 2008 12:38 pm

Re: Medicare IRMAA

Post by kaneohe » Tue Mar 06, 2018 8:04 pm

plannerman wrote:
Tue Mar 06, 2018 7:29 pm
Can't you simply wait until 2024 to cash them in. Or just cash in enough in 2022 and '23 to get you up to the IRMAA cliff.

plannerman
Taxes are due in the yr of maturity (or earlier) http://savings-bond-advisor.com/penalti ... ngs-bonds/
OP could consider paying taxes earlier than maturity which would put the initial lump in an earlier yr which might be better or worse.................

blmarsha123
Posts: 136
Joined: Mon Jan 19, 2015 4:23 pm

Re: Medicare IRMAA

Post by blmarsha123 » Tue Mar 06, 2018 8:33 pm

Probably would not hurt to submit an appeal in your case.

Just this year I successfully appealed an IRMAA decision based on circumstances somewhat similar to yours (an outlier year not specifically listed as one of the life changing events), although I did have one wrinkle that may have helped.

I completed both sets of forms and provided supporting documents in a 9x12 envelope and mailed to the local SSA office. I was pleasantly surprised when my appeal was quickly approved.

Bob
Posts: 173
Joined: Mon Feb 26, 2007 5:15 pm

Re: Medicare IRMAA

Post by Bob » Wed Mar 07, 2018 6:59 am

Thanks to everyone for the inputs. While there sounds like there is some hope of getting a successful appeal I am reticent to wait and find out that my case won't be approved. :confused

So I guess I will look at the extra IRMAA costs versus the lost interest if I cash in the bonds early and see which looks best. I had not thought of that until now and everyone's' inputs. Thanks again.

kaneohe
Posts: 4734
Joined: Mon Sep 22, 2008 12:38 pm

Re: Medicare IRMAA

Post by kaneohe » Wed Mar 07, 2018 10:17 am

Bob wrote:
Wed Mar 07, 2018 6:59 am
Thanks to everyone for the inputs. While there sounds like there is some hope of getting a successful appeal I am reticent to wait and find out that my case won't be approved. :confused

So I guess I will look at the extra IRMAA costs versus the lost interest if I cash in the bonds early and see which looks best. I had not thought of that until now and everyone's' inputs. Thanks again.
You don't have to cash in the bonds early. You can just declare the accrued interest to date in order to get the big lump disposed of in an earlier yr. Of course in subsequent years you then have to declare each yrs interest. I don't know if Treasury makes it easier for you by sending you a 1099 or if you have to dig up that info yourself. I suspect the latter but maybe it isn't that horrible to do after the initial learning. You will also have to track the amount you've already paid tax on since at maturity, you apparently get a 1099 for the lifetime earnings and need to debit some to avoid double taxes. https://www.treasurydirect.gov/indiv/pl ... an_tax.htm
But at least you might be able to retain the (presumably) higher rates for a few more yrs.

Bob
Posts: 173
Joined: Mon Feb 26, 2007 5:15 pm

Re: Medicare IRMAA

Post by Bob » Wed Mar 07, 2018 10:34 am

kaneohe wrote:
Wed Mar 07, 2018 10:17 am
Bob wrote:
Wed Mar 07, 2018 6:59 am
Thanks to everyone for the inputs. While there sounds like there is some hope of getting a successful appeal I am reticent to wait and find out that my case won't be approved. :confused

So I guess I will look at the extra IRMAA costs versus the lost interest if I cash in the bonds early and see which looks best. I had not thought of that until now and everyone's' inputs. Thanks again.
You don't have to cash in the bonds early. You can just declare the accrued interest to date in order to get the big lump disposed of in an earlier yr. Of course in subsequent years you then have to declare each yrs interest. I don't know if Treasury makes it easier for you by sending you a 1099 or if you have to dig up that info yourself. I suspect the latter but maybe it isn't that horrible to do after the initial learning. You will also have to track the amount you've already paid tax on since at maturity, you apparently get a 1099 for the lifetime earnings and need to debit some to avoid double taxes. https://www.treasurydirect.gov/indiv/pl ... an_tax.htm
But at least you might be able to retain the (presumably) higher rates for a few more yrs.
I liked this idea and looked into it deeper but found it might be a problem for me because to switch I will have to do it for all the EE bonds we hold and that will cause a huge inome hit this year. One cannot convert from deferring interest to paying it annually for just some bonds :( ;(

Boy, I never would have thought 25 years ago about such a problem. :oops:

kaneohe
Posts: 4734
Joined: Mon Sep 22, 2008 12:38 pm

Re: Medicare IRMAA

Post by kaneohe » Wed Mar 07, 2018 11:44 am

Back to redeeming early option........or perhaps the do nothing option.............not sure where in the IRMAA spectrum you are but in the first tier the increase looks like $1600 or so for MFJ...............I guess compare that with the extra income you'd get keeping them.....maybe it won't be so bad.

SuzBanyan
Posts: 146
Joined: Thu Jun 02, 2016 11:20 am

Re: Medicare IRMAA

Post by SuzBanyan » Wed Mar 07, 2018 12:25 pm

It may also be possible to create a “life-changing event” for the year in which you would otherwise have to pay IRMAA:

2022: Redeem Savings Bonds and increase MAGI by interest earned.

2023: Get a job that doesn’t pay so much that it pushes you into IRMAA.

2024: Quit your new job and use this “life-changing event” to request reconsideration of IRMAA for 2024 based on income in 2024 instead of 2022.

Thus, you would pay IRMAA (or not) in 2024 and 2026 based on 2024 income and pay IRMAA (or not) in 2025 based on 2023 income.

betterdays
Posts: 32
Joined: Sun May 11, 2014 9:08 am

Re: Medicare IRMAA

Post by betterdays » Thu Mar 22, 2018 11:36 am

Bob wrote:
Tue Mar 06, 2018 1:05 pm
I am trying to understand how Medicare IRMAA (Income Related Income Adjustment Amounts) would work in the following case:

1) We have a lot of U.S. EE Savings Bonds where we have deferred paying tax on their annual interest until they will mature in 2022. So in 2022 we will have a 'huge' amount of interest income from them which will push our Medicare MAGI over the IRMAA (Income Related Income Adjustment Amounts) limits and drive up our Medicare premium.

2) I understand Medicare determines one's IRMAA added premiums based on one's MAGI from two years prior, so that will impact 2024's premiums. In 2024 our expected income will be far below where IRMAA kicks in.

3) Lastly, I understand one can petition Medicare and ask for one's IRMAA added premium to be waved if your current income is no longer as high as 2 years ago. And in 2024 that will be our situation. The EE bond interest is w one time thing.

So question is: in the above situation would be we able to avoid the IRMAA added premiums in 2024?

You can call social security and/or medicare and ask them "what constitutes MAGI for IRMAA purposes?" I've read many different definitions of magi.

smitcat
Posts: 1351
Joined: Mon Nov 07, 2016 10:51 am

Re: Medicare IRMAA

Post by smitcat » Thu Mar 22, 2018 11:53 am

kaneohe wrote:
Wed Mar 07, 2018 11:44 am
Back to redeeming early option........or perhaps the do nothing option.............not sure where in the IRMAA spectrum you are but in the first tier the increase looks like $1600 or so for MFJ...............I guess compare that with the extra income you'd get keeping them.....maybe it won't be so bad.
Yes - about $1600 assuming both spouses are the same age and eligible.

Bob
Posts: 173
Joined: Mon Feb 26, 2007 5:15 pm

Re: Medicare IRMAA

Post by Bob » Thu Mar 22, 2018 12:07 pm

Thanks to everyone for the responses and ideas. I went back and re-read everything on the medicare.gov website about what is in Medicare MAGI and what are "life changing events" -- and found a like there that also shows what are NOT considered life changing events so one could appeal. Turns out the site specifically lists that "cashing in bonds" is NOT a life changing event, so now I know that option is not gonna be available ;)

So based on everything I had learned I created a spreadsheet to do what-ifs. The sheet was by year for the time frame I am looking at (2018 through 2026) and it included lines for base income, MAGI before cashing in any bonds, MAGI after cashing in some bonds in early, the impact on added IRMAA premiums and for the monies from interest earned on the bonds cashed in early. All this was done looking at the bottom-line after-tax.

What I found was that holding the bonds to maturity was the optimal financial result. The "hold to maturity: scenario does result in markedly higher IRMAA costs in the years after the bonds reach maturity but the impact of scenarios where I would cash in bonds early to avoid the higher IRMAA were all sub-optimal.

One assumption I made was about the interest rate that funds from cashing in EE bonds early could earn. If interest rates spike way above where they are now that could change the result so I am going to play with that just to know where the higher rate would have to be. The other change would be if IRMAA 'penalties" go up. So my plan is to monitor both those aspects annually. Otherwise, seems holding them may be best for me.

pshonore
Posts: 6328
Joined: Sun Jun 28, 2009 2:21 pm

Re: Medicare IRMAA

Post by pshonore » Thu Mar 22, 2018 12:41 pm

Aren't IRMAA limits going to be adjusted for inflation again starting in 2020?
https://www.ssa.gov/OP_Home/cfr20/418/418-1105.htm

That might create a little "wiggleroom"

Bob
Posts: 173
Joined: Mon Feb 26, 2007 5:15 pm

Re: Medicare IRMAA

Post by Bob » Thu Mar 22, 2018 12:57 pm

Yes, good point. Thanks. I'll add that as something else to monitor.

Another aspect I plan to monitor is future legislation. As happened just a couple years ago, there may be added lowering of when IRMAA brackets impact a person and/or how much the annual added costs are per bracket. If instead of indexing for inflation (which might be a benefit to me) Congress makes another change that raises IRMAA costs like they did in 2015/16 then it will flip the current scenarios I have projected (and current IRMAA rates) and pay to cash in the bonds early.

Of course, as Yogi Berra wisely said: “'It's tough to make predictions, especially about the future'”. I can try to anticipate things but in the end :confused

R. ANDERSON
Posts: 19
Joined: Sat Mar 10, 2018 10:35 am

Re: Medicare IRMAA

Post by R. ANDERSON » Thu Mar 22, 2018 1:41 pm

Several people were very helpful to Bob and they prompted me to do a similar analysis which prepared me for the IRMAA scenario. Thanks to all for questions, suggestions.

User avatar
GerryL
Posts: 1701
Joined: Fri Sep 20, 2013 11:40 pm

Re: Medicare IRMAA

Post by GerryL » Thu Mar 22, 2018 2:23 pm

pshonore wrote:
Thu Mar 22, 2018 12:41 pm
Aren't IRMAA limits going to be adjusted for inflation again starting in 2020?
https://www.ssa.gov/OP_Home/cfr20/418/418-1105.htm

That might create a little "wiggleroom"
This is very good news. I had not heard about plans to adjust the IRMAA limits. If the limits are raised it could be very helpful as my RMDs grow. As it is, I was looking at significantly increasing my QCDs. (May still do that, but it will feel less coerced.)

Bob
Posts: 173
Joined: Mon Feb 26, 2007 5:15 pm

Re: Medicare IRMAA

Post by Bob » Thu Mar 22, 2018 2:42 pm

GerryL wrote:
Thu Mar 22, 2018 2:23 pm
....
This is very good news. I had not heard about plans to adjust the IRMAA limits. If the limits are raised it could be very helpful as my RMDs grow. As it is, I was looking at significantly increasing my QCDs. (May still do that, but it will feel less coerced.)
I apologize for this Eeyore-like perspective, but given the history of IRMAA surcharges going up each time they are changed, it is hard to feel confident they will ever be lowered.
  • 2007 IRMAA surcharges added to Medicare for higher income Part B beneficiaries.

    2011 IRMAA added for higher income Medicare Part D beneficiaries.

    2018 IRMAA ‘qualifying’ brackets lowered so: (1) surcharge applies to people with lower MAGI and (2) the surcharge goes up for many others already affected by IRMAA.
:(

Swimmer
Posts: 231
Joined: Tue Dec 29, 2015 4:24 pm

Re: Medicare IRMAA

Post by Swimmer » Thu Mar 22, 2018 2:55 pm

Bob wrote:
Tue Mar 06, 2018 1:05 pm
I am trying to understand how Medicare IRMAA (Income Related Income Adjustment Amounts) would work in the following case:

1) We have a lot of U.S. EE Savings Bonds where we have deferred paying tax on their annual interest until they will mature in 2022. So in 2022 we will have a 'huge' amount of interest income from them which will push our Medicare MAGI over the IRMAA (Income Related Income Adjustment Amounts) limits and drive up our Medicare premium.

2) I understand Medicare determines one's IRMAA added premiums based on one's MAGI from two years prior, so that will impact 2024's premiums. In 2024 our expected income will be far below where IRMAA kicks in.

3) Lastly, I understand one can petition Medicare and ask for one's IRMAA added premium to be waved if your current income is no longer as high as 2 years ago. And in 2024 that will be our situation. The EE bond interest is w one time thing.

So question is: in the above situation would be we able to avoid the IRMAA added premiums in 2024?
I thought I was alone with this problem. Our year is 2021. Our plan is to discontinue any Roth conversions beginning next year and use the space for savings bond interest. We’re hoping this will work. We did some serious savings bond buying back in the day. :moneybag Never would have anticipated this issue without Bogleheads.

Post Reply