If you’ve never heard of IRMAA, you’ll want to know all about it before you retire.
It’s the Medicare income-related monthly adjustment amount, or the extra premium for Part B and Part D that higher-income beneficiaries pay for Medicare coverage.
In some cases, even a tiny increase in your income can put you in a higher income bracket and trigger this surcharge, meaning a married couple, for example, could suddenly be paying as much as $1,000 a month more than planned.
And if you convert a traditional IRA into a Roth account, thinking it’s a smart strategy for avoiding higher taxes later in retirement, your additional income could put you in surcharge territory and wipe out some of your expected savings.
For 2020, the surcharge is triggered when your modified adjusted gross income — that is, your adjusted gross income plus tax-exempt interest income — exceeds $174,000 for taxpayers who are married and file jointly or $87,000 for individual taxpayers.
Part B premiums combined with premium surcharges for Part B and Part D range from a total of $214.60 to $568.00 per month per person in 2020.
Not only are many people unaware of the surcharge, they also don’t understand how it works, says Forrest Baumhover, a planner with Lawrence Financial Planning in Tampa, Fla. For example, the surcharge is calculated based on your tax returns from two years prior.
How to tackle it: If you are married and one spouse is still working, coordinate your health insurance coverage. One of Baumhover’s clients retired and realized he’d be hit with an IRMAA surcharge as he enrolled in Medicare.
“We pointed out that he didn’t need to enroll in Medicare and pay the related IRMAA surcharge as long as she was still working and he was covered under her plan,” Baumhover says.
The couple verified this with their local Medicare office, enrolled in her employer’s health care coverage and are dropping Medicare for now, saving more than $2,000 per year in IRMAA surcharges, plus the standard Medicare premiums, he says.
Before using this strategy, confirm whether your spouse’s health plan requires you to enroll in Medicare at age 65. In companies with fewer than 20 employees, for example, the employer plan may pay secondary to Medicare when an enrollee is Medicare eligible.
You also can appeal the surcharge. Request a reconsideration by calling the Social Security Administration at (800) 772-1213. An inaccurate tax return or a life-changing event, such as divorce or death of a spouse, can qualify for an appeal.