Contrary to common belief, Medicare is not entirely free

Medicare Part A, also known as hospital insurance, is free if you have worked in the U.S. for a particular number of years. Typically, if you’ve qualified for Social Security benefits, you’re also eligible for free Medicare Part A.

Medicare Part B includes additional services and supplies, and the monthly cost varies according to income.

There’s also Part D for medications, free if your income is low enough but has a fee after reaching specific thresholds.

Income-Related Monthly Adjustment Amount (IRMA)

In 2022, the standard Part B premium is $170.10. According to Medicare.gov, most people pay the standard Part B premium.

But, if your modified adjusted gross income (MAGI), reported on your IRS tax return from 2 years ago, is more than a certain amount, you must pay the standard premium amount and an IRMAA. IRMAA is an extra charge that’s applied to your premium.

Like so many other aspects of retirement, it’s more complicated than you may assume. First, the Social Security office looks back two years to establish your premium level, so if 2021 is your first year enrolling in Medicare, they’ll use data from your 2019 tax return.

Let’s look at the following example: Assume you’re turning 65 in 2022, and your 2020’s MAGI is less than $91,000 if single/$182,000 if married filing jointly; in this scenario, your Part B premiums will be $170 per month, and Part D will be free. (Your MAGI is determined by adding any tax-free interest income to your adjusted gross income (AGI).

Your premiums will now be greater if your MAGI surpasses extra threshold values. That’s known as means testing and is technically known as the IRMAA. The Social Security office will notify you of your premium amounts through a letter called the Initial Determination Letter.

Singles with a MAGI of more than $142,000 or marrieds with a MAGI of more than $284,000 will pay $442/month for Part B and $52/month for Part D.

The highest Part B and Part D premiums of $578 and $78, respectively, apply to MAGI of more than $500,000 for singles and $750,000 for marrieds.

You’ll get a quarterly bill for these charges if you have not yet enrolled in Social Security. However, the premiums are removed from your monthly Social Security check if you’re a Social Security beneficiary.

A new initial determination request

Beneficiaries can also request a new initial determination from the SSA. There’s a list of life-changing events that influence MAGI, and your situation must be on the list to make this request.

For example, if your MAGI decreases by at least one range in the chart above, you’re qualified to obtain a new initial determination in the following situations:

• you married, divorced, became widowed, or your marriage got annulled,
• you or your spouse are no longer working or are working reduced hours,
• you or your spouse lost income-generating property due to a disaster or other event beyond you or your spouse’s control,
• you or your spouse had a scheduled cessation, reorganization, or termination of an employer’s pension plan,
• you or your spouse got a settlement from a current employer or former employer due to the employer’s bankruptcy.

You have an amended tax return for your determination year (2020 if enrolling in 2022), and your MAGI from the amended tax return is less than the MAGI received from the IRS.

If your new initial determination request is denied, you have 60 days to file an appeal using form SSA-44. The letters will tell you when and how to file an appeal.

Form SSA-44 is available in three ways:

It may be downloaded at https://www.ssa.gov/forms/ssa-44-ext.pdf.

Call 1-800-772-1213 and ask for an appeal form to be mailed to you. TTY users can call  1-800-325-0778.

Go to your nearest Social Security office.

IRMAA and one-time events

What about Medicare beneficiaries whose IRMAA is determined on a two-year-old one-time event?

Let’s look at two examples.

Assume you converted a Roth IRA in 2020, which pushed your MAGI to a higher threshold. After two years, in 2022, you’ll pay higher Part B and D premiums for one year. Many people have avoided the Roth conversion because of this. However, when there’s an analysis that includes this expense, it still makes sense to do the Roth conversion in many situations. So, you shouldn’t automatically reject a Roth conversion only to prevent an IRMAA rise.

In 2020, you sold a property or company. That’s not an exemption; you’ll be subject to the increase. But what if your income was below the criteria in 2021? When you reach 2023, your premiums will be reduced.

IRMAA and RMDs

The IRMAA impacts around 5% of Medicare’s 61 million beneficiaries. Among those 3 million beneficiaries are households with high IRA and 401(k) balances, which must make required minimum distributions (RMDs).

When you have significant IRA, and 401(k) balances and your RMDs begin at 72, this extra income puts many people into these higher threshold levels, even if they simply paid the basic amounts previously. That can be another factor when considering Roth conversions between the ages of 60 and 72. If done correctly, converting enough to Roth IRAs and lowering your RMD may put you in a reduced Medicare price category for many years after you reach 72 and beyond.

Contact Information:
Email: [email protected]
Phone: 7242723902

Bio:
Craig E. Vukich is a 35 year retirement specialist and Financial Advisor who has helped thousands of clients all over the country with their investment portfolios and retirement strategies.
In that time, Craig has also helped seniors and retirees with their Medicare options as healthcare continues to be one of the most confusing issues facing people today.
Personally, Craig lives in Beaver Falls, Pa with his beautiful wife and childhood sweetheart Barb and their lovely daughter Shalyn.
Craig is a graduate of Westminster College which is about an hour north of Pittsburgh. Craig is a recreational golfer and traveler and Pittsburgh sports fanatic.

Disclosure:
This information is not a complete analysis of the topic(s) discussed, is general in nature, and is not personalized investment advice. Nothing in this article is intended to be investment advice. There are risks involved with investing which may include (but are not limited to) market fluctuations and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making any investment decision. You should consult a professional tax or investment advisor regarding tax and investment implications before taking any investment actions or implementing any investment strategies.