IRMAA reduction without "life changing event?"

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FIREchief
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IRMAA reduction without "life changing event?"

Post by FIREchief » Mon Jun 04, 2018 1:50 pm

Here's the scenario:
Joe (married filing jointly) has been performing aggressive Roth conversion prior to age 65 but wants to scale back to avoid IRMAA (the Medicare premium surcharges for higher MAGI taxpayers). His birthday is July 1, and he'll turn 65 in 2022. If he does nothing, Medicare will look at his 2020 MAGI as provided by the IRS in late 2021 (he filed his 1040 by October 15, 2021). This means that if his Roth conversions and other income for 2020 exceed $320K, he'll pay the highest IRMAA surcharges for the last six months of 2022.

Now, what happens if Joe stops Roth conversions in 2021, and files his 2021 tax return on April 15, 2022 with a MAGI of $100K. His Medicare won't start for over two months. Can he appeal to Medicare to use his 2021 MAGI to avoid all IRMAA surcharges?
We've discussed this here in the past, and the general consensus has been that changes to investment income (such as reduction of Roth conversions), does NOT constitute a qualifying life changing event that will be acceptable to Medicare. I've also read this elsewhere. That said, I just reviewed the actual Social Security Administration form for requesting IRMAA changes:

https://www.ssa.gov/forms/ssa-44.pdf

On page 5, the form instructions state:
You do not have to complete this form in order to ask that we use your information about your modified adjusted gross income for a more recent tax year. If you prefer, you may call 1-800-772-1213 and speak to a representative from 7 a.m. until 7 p.m. on business days to request an appointment at one of our field offices.
Does this mean that Joe can simply take a copy of his 2021 tax return (and possibly IRS tax transcript) to the Medicare office and avoid six months of top IRMAA surcharges? Has anybody tried this? This could have meaningful implications for Roth conversion planning in the absence of recognized "life changing events."
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

The Wizard
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Re: IRMAA reduction without "life changing event?"

Post by The Wizard » Mon Jun 04, 2018 2:09 pm

Well you can make the appointment and see what happens, but strictly speaking, the rules are what they are, meaning that Roth conversions can cause higher IRMAA tiers and stopping them later is not cause for putting you back in a lower tier prematurely.

Now I had higher MAGI in 2016 due to part-time work on top of regular retirement income, so I got boosted up one higher tier at start of this year.
But I had zero W-2 part-time income in 2017, so after I filed form 1040 in February, I sent Medicare the evidence and they rescinded my IRMAA tier boost. But that was a valid LCE...
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FIREchief
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Re: IRMAA reduction without "life changing event?"

Post by FIREchief » Mon Jun 04, 2018 4:50 pm

The Wizard wrote:
Mon Jun 04, 2018 2:09 pm
Well you can make the appointment and see what happens, but strictly speaking, the rules are what they are, meaning that Roth conversions can cause higher IRMAA tiers and stopping them later is not cause for putting you back in a lower tier prematurely.

Now I had higher MAGI in 2016 due to part-time work on top of regular retirement income, so I got boosted up one higher tier at start of this year.
But I had zero W-2 part-time income in 2017, so after I filed form 1040 in February, I sent Medicare the evidence and they rescinded my IRMAA tier boost. But that was a valid LCE...
I'm not so sure what the real rules are here. The section of the SSA form instructions that I quoted implies that the "rules" allow a later tax return (i.e. the return filed for the "prior year" instead of the "prior prior year") to be used to reduce or eliminate IRMAA even in the absence of a LCE.

I can't make the appointment, because I am not the hypothetical Joe and am not at the point described. Perhaps others will weigh in who are or have been in a similar situation.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

fourwheelcycle
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Re: IRMAA reduction without "life changing event?"

Post by fourwheelcycle » Mon Jun 04, 2018 5:17 pm

Hmm.... My wife and I are about to have three life changing events that, on net, will increase, not decrease our income. She is going to retire, which will decrease our income and require us to sign up for Medicare Part B for the first time, and we will both be turning 70, which will start our RMDs and increase our income by more than her pay decrease.

I assume RMD income does count as income as far as IRMAA is concerned - correct?

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FIREchief
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Re: IRMAA reduction without "life changing event?"

Post by FIREchief » Mon Jun 04, 2018 5:37 pm

fourwheelcycle wrote:
Mon Jun 04, 2018 5:17 pm
Hmm.... My wife and I are about to have three life changing events that, on net, will increase, not decrease our income. She is going to retire, which will decrease our income and require us to sign up for Medicare Part B for the first time, and we will both be turning 70, which will start our RMDs and increase our income by more than her pay decrease.

I assume RMD income does count as income as far as IRMAA is concerned - correct?
Commencement of RMDs is not a life changing event as listed on the SSA form linked in the original post. Work stoppage or reduction is.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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GerryL
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Re: IRMAA reduction without "life changing event?"

Post by GerryL » Mon Jun 04, 2018 5:40 pm

fourwheelcycle wrote:
Mon Jun 04, 2018 5:17 pm

I assume RMD income does count as income as far as IRMAA is concerned - correct?
RMD income does indeed count for the purpose of determining IRMAA. My plan is to use QCDs (qualified charitable distributions) to keep my income below the level that would make me subject to IRMAA.

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Re: IRMAA reduction without "life changing event?"

Post by Alan S. » Mon Jun 04, 2018 6:26 pm

You also have flexibility to defer all or part of your first RMD (for the year you reach 70.5). That could delay the start of IRMAA surcharges for a year or it could make them worse 2 years after the year you must take 2 RMDs. It all depends on the numbers for the affected years, so that decision might have to be made as late as possible.

fourwheelcycle
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Re: IRMAA reduction without "life changing event?"

Post by fourwheelcycle » Mon Jun 04, 2018 8:33 pm

GerryL wrote:
Mon Jun 04, 2018 5:40 pm
RMD income does indeed count for the purpose of determining IRMAA. My plan is to use QCDs (qualified charitable distributions) to keep my income below the level that would make me subject to IRMAA.
Thanks, or not thanks, for confirming that our RMD income will count toward IRMAA. I am going to use QCDs to wipe out my RMDs, but my wife wants to keep hers for the future benefit of our children. I think they will get enough w/o our RMDs, but my wife is a women's libber who thinks she has a right to make her own financial decisions. C'est la vie.

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One Ping
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Re: IRMAA reduction without "life changing event?"

Post by One Ping » Thu Jul 12, 2018 5:35 pm

FIREchief wrote:
Mon Jun 04, 2018 1:50 pm
Here's the scenario:
Joe (married filing jointly) has been performing aggressive Roth conversion prior to age 65 but wants to scale back to avoid IRMAA (the Medicare premium surcharges for higher MAGI taxpayers). His birthday is July 1, and he'll turn 65 in 2022. If he does nothing, Medicare will look at his 2020 MAGI as provided by the IRS in late 2021 (he filed his 1040 by October 15, 2021). This means that if his Roth conversions and other income for 2020 exceed $320K, he'll pay the highest IRMAA surcharges for the last six months of 2022.

Now, what happens if Joe stops Roth conversions in 2021, and files his 2021 tax return on April 15, 2022 with a MAGI of $100K. His Medicare won't start for over two months. Can he appeal to Medicare to use his 2021 MAGI to avoid all IRMAA surcharges?
We've discussed this here in the past, and the general consensus has been that changes to investment income (such as reduction of Roth conversions), does NOT constitute a qualifying life changing event that will be acceptable to Medicare. I've also read this elsewhere. That said, I just reviewed the actual Social Security Administration form for requesting IRMAA changes:

https://www.ssa.gov/forms/ssa-44.pdf

On page 5, the form instructions state:
You do not have to complete this form in order to ask that we use your information about your modified adjusted gross income for a more recent tax year. If you prefer, you may call 1-800-772-1213 and speak to a representative from 7 a.m. until 7 p.m. on business days to request an appointment at one of our field offices.
Does this mean that Joe can simply take a copy of his 2021 tax return (and possibly IRS tax transcript) to the Medicare office and avoid six months of top IRMAA surcharges? Has anybody tried this? This could have meaningful implications for Roth conversion planning in the absence of recognized "life changing events."
So, they must check every year, right? If Joe's Medicare MAGI for 2021 is back below the limit, even if they don't adjust his 2022 Medicare premium, his 2023 would be adjusted back down, right?

If you have a bunch of Roth conversion to make, this seems to present an opportunity to 'bunch' conversions into one year and just take the Medicare MAGI hit for one year, right? Am I missing something here?

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FIREchief
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Re: IRMAA reduction without "life changing event?"

Post by FIREchief » Thu Jul 12, 2018 6:41 pm

They do "check" every year. As I understand it, sometime after October 15 (the tax filing deadline with extension), the IRS provides a data dump to the Medicare folks with all the reported MAGI's. Then, Medicare uses this information to calculate any IRMAA for all recipients beginning the following January. This is what results in the two year "look back."

Each Roth conversion situation may be different. It is worthwhile to compare various levels of bunching to try to find an optimal strategy. In general, if you surpass an IRMAA threshold, you may wish to convert additional funds up to whatever the next "cliff" is (next IRMAA tier, next tax bracket, etc.). It's just a matter of running the numbers for your particular situation.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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One Ping
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Re: IRMAA reduction without "life changing event?"

Post by One Ping » Thu Jul 12, 2018 6:54 pm

FIREchief wrote:
Thu Jul 12, 2018 6:41 pm
In general, if you surpass an IRMAA threshold, you may wish to convert additional funds up to whatever the next "cliff" is (next IRMAA tier, next tax bracket, etc.). It's just a matter of running the numbers for your particular situation.
Yup, this is what we are doing. Roth converting up to near the MAGI limit for all years except 2020. 2020 will be a much larger year up to the top of the tax bracket, then back to lower amount to finish off the conversions in 2021. We will have an increased payment in 2022, but that will be covered by the starting of our SS (mine + DW spousal) that will be more than enough to cover that additional cost. Then in 2023, back to baseline payment.
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FIREchief
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Re: IRMAA reduction without "life changing event?"

Post by FIREchief » Thu Jul 12, 2018 7:08 pm

One Ping wrote:
Thu Jul 12, 2018 6:54 pm
FIREchief wrote:
Thu Jul 12, 2018 6:41 pm
In general, if you surpass an IRMAA threshold, you may wish to convert additional funds up to whatever the next "cliff" is (next IRMAA tier, next tax bracket, etc.). It's just a matter of running the numbers for your particular situation.
Yup, this is what we are doing. Roth converting up to near the MAGI limit for all years except 2020. 2020 will be a much larger year up to the top of the tax bracket, then back to lower amount to finish off the conversions in 2021. We will have an increased payment in 2022, but that will be covered by the starting of our SS (mine + DW spousal) that will be more than enough to cover that additional cost. Then in 2023, back to baseline payment.
Sounds like you've given this some thought and have a good plan. :sharebeer

Unfortunately, there are rarely any easy answers to the question: "how much should I Roth convert and when?" Fortunately, no matter how difficult a person's questions are there is very likely somebody here on the forum who can answer them. I literally didn't know how to spell IRMAA until I started following this forum. It is one of those things that the vast majority doesn't understand, but it can cost some folks a lot of money if they don't take the time to plan flexible income streams (Roth conversion timing, IRA withdrawals, social security benefit claiming, etc.).
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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One Ping
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Re: IRMAA reduction without "life changing event?"

Post by One Ping » Thu Jul 12, 2018 7:29 pm

FIREchief wrote:
Thu Jul 12, 2018 7:08 pm
Sounds like you've given this some thought and have a good plan. :sharebeer

Unfortunately, there are rarely any easy answers to the question: "how much should I Roth convert and when?" Fortunately, no matter how difficult a person's questions are there is very likely somebody here on the forum who can answer them. I literally didn't know how to spell IRMAA until I started following this forum. It is one of those things that the vast majority doesn't understand, but it can cost some folks a lot of money if they don't take the time to plan flexible income streams (Roth conversion timing, IRA withdrawals, social security benefit claiming, etc.).
Yup. Complex, obtuse and arcane ... But that's what makes it fun ... Right? :sharebeer
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