How to Plan for Medicare Surcharges

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Most Medicare beneficiaries don’t have to worry about paying more than the base or standard rate for their Medicare Part B and Part D premiums in 2020. But single taxpayers who had modified adjusted gross income (MAGI) greater than $87,000 in 2018 and married couples with MAGI greater than $174,000 in 2018 will pay the standard premium amount ($144.60 in 2020) plus an extra charge added to their premium, which is called the Income Related Monthly Adjustment Amount or IRMAA.

What you may ask is MAGI and IRMAA? MAGI is adjusted gross income (AGI) plus these, if any: untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest. Read Modified Adjusted Gross Income (MAGI) - HealthCare.gov Glossary. And IRMAA is an additional amount added to the monthly Part B and Part D premiums for individuals whose modified adjusted gross income (or MAGI) exceeds certain threshold amounts that can change each year. Part D IRMAA is administered by the Part D carrier. Read 2020 Medicare Costs.

In a Retirement Daily podcast, Jae Oh, author of Maximize Your Medicare, noted that if you are enrolled in a Medicare Advantage Prescription Drug Plan (MAPD), then IRMAA will be added to the stated MAPD premium.

According to Oh, if you are assessed an IRMAA, you will receive a notice from the Social Security Administration.

In the interview, Oh said there are six income brackets associated with IRMAA and starting in 2020, the income brackets used to determine those surcharges will be indexed to inflation.

Oh also said there are a number of ways, many of which inadvertent, that taxpayers can become subject to IRMAA. Those include taxpayers receiving a corporate buyout, having large capital gains, converting a traditional IRA into a Roth IRA, selling a house and the like. “People think of their income as purely their Social Security or perhaps their pension,” he said. “But, in effect, there are extra line items” which can increase modified adjusted gross income.

To be fair, you can appeal the IRMAA, the Oh says the process is not “particularly friendly.” Read Medicare Part B Premium Appeals.

Oh also said there several ways for Medicare beneficiaries to avoid or reduce the IRMAA. Those include using a reverse mortgage, Roth IRA distributions, and tapping the cash value in a life insurance policy for income.

Given the complexities of the IRMAA, Oh says taxpayers ought to start planning when and how they will receive income well in advance of applying for Medicare.

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