Question about IRMAA and first couple years of retirement

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cresive
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Question about IRMAA and first couple years of retirement

Post by cresive » Tue Dec 05, 2017 11:01 am

Hello all,
I have a fundamental question about the Income-Related Monthly Adjusted Amount calculation and retirement. From what I have read, IRMAA is calculated using a two-year old tax return--i.e. my 2017 IRMAA would be calculated using my 2015 tax return. I had always thought it was a three year average. The problem with using a two-year old tax return could arise in the first two years of retirement.

For instance:
Income until retirement: $86,000
FRA is 67 y.o.
Game Plan: Work full time until FRA. Use employers insurance until retire. Sign up for Medicare at 65, but only for basic. Expand Medicare at FRA to include Plans B an D. Budget for plans B and D = $200 (134 for B and I don't know what my D would be so estimated as $66).

When I am 66 y.o. I am making $86K and living okay. When I retire, I would be making less--let's say $45,000 including SSA, savings and other investments. I am fine until I realize IRMAA will add a significant amount to my budget.

Since my income @65 y.o. was $86,000, I will have to pay an additional $66.70/month for parts B and D ($53.50 B + 13.20 for D). This extra monthly charge ($800/year) doesn't sound like much, but it could really upset a budget.

I used $86,000 salary as a for instance. I would really be messed up as I do make more than $107K so I would actually be adding about $168/month or would need an extra $2000/year for the first two years of retirement.

Am I missing something here? It sounds like a catch-22 for someone making more than an average wage. Are there any good adaptive strategies to help with this?

Thanks,
Cresive

Prudence
Posts: 277
Joined: Fri Mar 09, 2012 4:55 pm

Re: Question about IRMAA and first couple years of retirement

Post by Prudence » Tue Dec 05, 2017 11:11 am

cresive wrote:
Tue Dec 05, 2017 11:01 am
Hello all,
I have a fundamental question about the Income-Related Monthly Adjusted Amount calculation and retirement. From what I have read, IRMAA is calculated using a two-year old tax return--i.e. my 2017 IRMAA would be calculated using my 2015 tax return. I had always thought it was a three year average. The problem with using a two-year old tax return could arise in the first two years of retirement.

For instance:
Income until retirement: $86,000
FRA is 67 y.o.
Game Plan: Work full time until FRA. Use employers insurance until retire. Sign up for Medicare at 65, but only for basic. Expand Medicare at FRA to include Plans B an D. Budget for plans B and D = $200 (134 for B and I don't know what my D would be so estimated as $66).

When I am 66 y.o. I am making $86K and living okay. When I retire, I would be making less--let's say $45,000 including SSA, savings and other investments. I am fine until I realize IRMAA will add a significant amount to my budget.

Since my income @65 y.o. was $86,000, I will have to pay an additional $66.70/month for parts B and D ($53.50 B + 13.20 for D). This extra monthly charge ($800/year) doesn't sound like much, but it could really upset a budget.

I used $86,000 salary as a for instance. I would really be messed up as I do make more than $107K so I would actually be adding about $168/month or would need an extra $2000/year for the first two years of retirement.

Am I missing something here? It sounds like a catch-22 for someone making more than an average wage. Are there any good adaptive strategies to help with this?

Thanks,
Cresive
I don't know. But, I retired in 2016 and SSA planned to charge me the IRMAA in 2017 based on my 2015 AGI (actually MAGI). My income in 2017 is significantly lower than in 2016 or 2015. So, after I received the letter from Social Security, I sent them a form requesting a reduction in the 2017 IRMAA due to income reduction due to "work stoppage". The form must be sent within 60 days following receipt of their letter.

cresive
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Location: Virginia, USA

Re: Question about IRMAA and first couple years of retirement

Post by cresive » Tue Dec 05, 2017 11:21 am

I figured there must be some way around the issue. Thanks!!

Prudence
Posts: 277
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Re: Question about IRMAA and first couple years of retirement

Post by Prudence » Tue Dec 05, 2017 11:36 am

cresive wrote:
Tue Dec 05, 2017 11:21 am
I figured there must be some way around the issue. Thanks!!
The form is SSA-44 Medicare Income-Related Monthly Adjustment Amount-Life Changing Event. And, SSA asks you to provide evidence of the work stoppage or other life changing event with the form.

quantAndHold
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Re: Question about IRMAA and first couple years of retirement

Post by quantAndHold » Tue Dec 05, 2017 12:05 pm

Went through this personally. The Monday after I left my job, DW and I marched down to the SS office and filed the paperwork. You need the termination letter from your employer. Keep the termination letter, because they’ll keep trying to add the IRMAA every year until you file taxes with the lower income. Annoying but true.

My understanding is if you do nothing, you’ll get charged the IRMAA, but eventually, once they figure out what your actual income was for the year, you would get it refunded. I know from experience that it works the other way...

DrGoogle2017
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Joined: Mon Aug 14, 2017 12:31 pm

Re: Question about IRMAA and first couple years of retirement

Post by DrGoogle2017 » Wed Dec 06, 2017 12:54 am

Can you contribute to 401k to reduce the income to be less than $85k?

The Wizard
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Location: Reading, MA

Re: Question about IRMAA and first couple years of retirement

Post by The Wizard » Wed Dec 06, 2017 2:19 am

DrGoogle2017 wrote:
Wed Dec 06, 2017 12:54 am
Can you contribute to 401k to reduce the income to be less than $85k?
Yes...
Attempted new signature...

walkindude
Posts: 47
Joined: Wed Nov 11, 2015 4:46 pm

Re: Question about IRMAA and first couple years of retirement

Post by walkindude » Thu Dec 07, 2017 8:32 am

Anybody have an idea how/if this works if you're self-employed? Thanks.

The Wizard
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Re: Question about IRMAA and first couple years of retirement

Post by The Wizard » Thu Dec 07, 2017 12:16 pm

walkindude wrote:
Thu Dec 07, 2017 8:32 am
Anybody have an idea how/if this works if you're self-employed? Thanks.
Very similar. You start with your AGI at the bottom of front page of form 1040 and then add any tax exempt interest to it to get your MAGI.
Then see where you are on the IRMAA table...
Attempted new signature...

DrGoogle2017
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Joined: Mon Aug 14, 2017 12:31 pm

Re: Question about IRMAA and first couple years of retirement

Post by DrGoogle2017 » Fri Dec 08, 2017 1:05 am

walkindude wrote:
Thu Dec 07, 2017 8:32 am
Anybody have an idea how/if this works if you're self-employed? Thanks.
You might want to open a solo 401k because any contribution to IRA will be added back to you AGI. That’s why it’s called Modified AGI.
https://turbotax.intuit.com/tax-tips/ir ... /L7kHckNS3

Chip
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Joined: Wed Feb 21, 2007 4:57 am

Re: Question about IRMAA and first couple years of retirement

Post by Chip » Fri Dec 08, 2017 4:10 am

DrGoogle2017 wrote:
Fri Dec 08, 2017 1:05 am
You might want to open a solo 401k because any contribution to IRA will be added back to you AGI. That’s why it’s called Modified AGI.
https://turbotax.intuit.com/tax-tips/ir ... /L7kHckNS3
This definition of MAGI isn't correct for IRMAA determinations. For IRMAA it is simply AGI plus tax exempt interest/dividends. See p. 6 of https://www.ssa.gov/pubs/EN-05-10536.pdf.

There are multiple MAGIs, each modified in a different way, used for different purposes. Yet another thing that makes the tax code confusing...

Mitchell777
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Re: Question about IRMAA and first couple years of retirement

Post by Mitchell777 » Fri Dec 08, 2017 5:54 am

What does the letter from your former employer need to state? Is it just a few lines stating your name and that you retired on a specific date. Or does it require address, SS number etc? Thanks

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mrc
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Re: Question about IRMAA and first couple years of retirement

Post by mrc » Fri Dec 08, 2017 6:31 am

Mitchell777 wrote:
Fri Dec 08, 2017 5:54 am
What does the letter from your former employer need to state? Is it just a few lines stating your name and that you retired on a specific date. Or does it require address, SS number etc? Thanks
Anyone who needs this should either already have your PII (personally identifiable information), or you will furnish it to them. I asked HR for the following text on letterhead:


<date>

To Whom It May Concern,

Please accept this letter as confirmation that ____'s last day of employment with <company> is today, <date>.

Please feel free to contact the <company> - HR Services Department at <phone, ext>, if you need any additional information.

Sincerely,


<name>
Benefits Specialist
Human Resources Department
<company>
A great challenge of life: Knowing enough to think you're doing it right, but not enough to know you're doing it wrong. — Neil deGrasse Tyson

walkindude
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Joined: Wed Nov 11, 2015 4:46 pm

Re: Question about IRMAA and first couple years of retirement

Post by walkindude » Fri Dec 08, 2017 7:35 am

The Wizard wrote:
Thu Dec 07, 2017 12:16 pm
walkindude wrote:
Thu Dec 07, 2017 8:32 am
Anybody have an idea how/if this works if you're self-employed? Thanks.
Very similar. You start with your AGI at the bottom of front page of form 1040 and then add any tax exempt interest to it to get your MAGI.
Then see where you are on the IRMAA table...
Thanks, I understand the MAGI part. My question concerns how I convince them I'm retired when I'm self-employed. No employer to submit a resignation letter to - or maybe I write one to myself :wink:

Prudence
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Joined: Fri Mar 09, 2012 4:55 pm

Re: Question about IRMAA and first couple years of retirement

Post by Prudence » Fri Dec 08, 2017 8:02 am

walkindude wrote:
Fri Dec 08, 2017 7:35 am
The Wizard wrote:
Thu Dec 07, 2017 12:16 pm
walkindude wrote:
Thu Dec 07, 2017 8:32 am
Anybody have an idea how/if this works if you're self-employed? Thanks.
Very similar. You start with your AGI at the bottom of front page of form 1040 and then add any tax exempt interest to it to get your MAGI.
Then see where you are on the IRMAA table...
Thanks, I understand the MAGI part. My question concerns how I convince them I'm retired when I'm self-employed. No employer to submit a resignation letter to - or maybe I write one to myself :wink:
The IRS form instructions explain exactly what they need for evidence. FYI, the HR department of the company where I worked would not agree to send me a letter (because a special letter for me would require their legal department approval). They agreed to email me a copy of the voluntary separation agreement I had signed with an electronic signature back in 2015. This was not the original signed letter that the SSA needs. But, I submitted the copy along with my form to the SSA branch office and am now awaiting for their decision which may take three months. If they do not approve it, I will probably go back to my company and explain why I need to special confirmation letter for SSA. (I will update my post later!).

rennale
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Joined: Sun Apr 23, 2017 6:50 am

Re: Question about IRMAA and first couple years of retirement

Post by rennale » Fri Dec 08, 2017 8:48 am

Re:
Went through this personally. The Monday after I left my job, DW and I marched down to the SS office and filed the paperwork. You need the termination letter from your employer. Keep the termination letter, because they’ll keep trying to add the IRMAA every year until you file taxes with the lower income. Annoying but true.

Interesting. Retiring is not proof that one's income will drop sufficiently to reduce IRMAA payments, so what does the SSA do if there is no tax return to prove the point? If you retire in December (so that year's tax return shows an IRMAA-triggering income) but have no income from January, does the SSA simply believe you and eliminate your IRMAA rate for the new year?

Re:
My understanding is if you do nothing, you’ll get charged the IRMAA, but eventually, once they figure out what your actual income was for the year, you would get it refunded. I know from experience that it works the other way...

It would be nice to know if anybody has experience of this (a refund) actually happening. On the other hand, are you saying that you convinced the SSA to eliminate your IRMAA payments and then bill you for underpayment when they finally saw your tax return? Cool!
Last edited by rennale on Fri Dec 08, 2017 12:22 pm, edited 1 time in total.

cresive
Posts: 111
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Location: Virginia, USA

Re: Question about IRMAA and first couple years of retirement

Post by cresive » Fri Dec 08, 2017 9:50 am

rennale wrote:
Fri Dec 08, 2017 8:48 am
Re:
Went through this personally. The Monday after I left my job, DW and I marched down to the SS office and filed the paperwork. You need the termination letter from your employer. Keep the termination letter, because they’ll keep trying to add the IRMAA every year until you file taxes with the lower income. Annoying but true.

Interesting. Retiring is not proof that ones income will drop sufficiently to reduce IRMAA payments, so what does the SSA do if there is no tax return to prove the point? If you retire in December (so that year's tax return shows an IRMAA-triggering income) but have no income from January, does the SSA simply believe you and eliminate your IRMAA rate for the new year?

This gets to the gist of my original question. How do you proceed here? If someone submits the SSA form to establish they have quit their job, do they get a year free on estimating medicare fees? I would much rather get a free year and have to pay up at the end, rather than having to pay all year and hopefully get a refund. However, I would actually pay my fair share all along. What have other people done during the first couple years of their retirement?


Re:
My understanding is if you do nothing, you’ll get charged the IRMAA, but eventually, once they figure out what your actual income was for the year, you would get it refunded. I know from experience that it works the other way...

It would be nice to know if anybody has experience of this (a refund) actually happening. On the other hand, are you saying that you convinced the SSA to eliminate your IRMAA payments and then bill you for underpayment when they finally saw your tax return? Cool!
Again, I would much rather pay at the end rather than try to get a refund after overpaying for a year.

The Wizard
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Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Question about IRMAA and first couple years of retirement

Post by The Wizard » Fri Dec 08, 2017 10:16 am

walkindude wrote:
Fri Dec 08, 2017 7:35 am
The Wizard wrote:
Thu Dec 07, 2017 12:16 pm
walkindude wrote:
Thu Dec 07, 2017 8:32 am
Anybody have an idea how/if this works if you're self-employed? Thanks.
Very similar. You start with your AGI at the bottom of front page of form 1040 and then add any tax exempt interest to it to get your MAGI.
Then see where you are on the IRMAA table...
Thanks, I understand the MAGI part. My question concerns how I convince them I'm retired when I'm self-employed. No employer to submit a resignation letter to - or maybe I write one to myself :wink:
I have this situation presently.
I made $30,000 in 2016 working part-time, on top of my normal retirement income. So that boosted me up one IRMAA tier.

But this year, no pt income, so I just sent in the form stating the facts along with my estimated MAGI, which should drop me down one IRMAA tier for 2018.

I'll send in a copy of my 2017 form 1040 in February after I file and we'll see what happens...
Attempted new signature...

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