Easing the sting of IRMAA

How Clients Can Ease The Sting Of Medicare’s IRMAA Fee
https://www.fa-mag.com/news/how-wealthy-clients-can-ease-the…

Affected clients often appeal an IRMAA, which is filed with Form SSA-44, “Medicare Income-Related Monthly Adjustment Amount - Life-Changing Event.” Legitimate life-changing events include marriage or divorce; death of a spouse; one spouse stopping working or having hours reduced; losing an income-producing property to a disaster; and bankruptcy.

“I keep reminding them the gain from the sale of a home or a capital gain from the sale of securities is not going to win an appeal,” Pon said.

intercst

"How Clients Can Ease The Sting Of Medicare’s IRMAA Fee
https://www.fa-mag.com/news/how-wealthy-clients-can-ease-the…

Affected clients often appeal an IRMAA, which is filed with Form SSA-44, “Medicare Income-Related Monthly Adjustment Amount - Life-Changing Event.” Legitimate life-changing events include marriage or divorce; death of a spouse; one spouse stopping working or having hours reduced; losing an income-producing property to a disaster; and bankruptcy.

“I keep reminding them the gain from the sale of a home or a capital gain from the sale of securities is not going to win an appeal,” Pon said.

intercst "


Now why does the phrase “Death and taxes” come to mind?

Howie52
DW and I are getting ready to do a home renovation which will grab a large portion of our
“emergency fund” - and we are beginning to look into what we need to do to rebuild the
fund - without triggering a “one-time” income jump. And so we are looking at rebuilding the
fund gradually over a period of 3 or 4 years.

We try to plan - but circumstances and the luck of the draw may have a greater impact than the
best laid plans.

2 Likes

When it comes to IMMRA, interest, dividends, and capital gains are items you can control. Investments that accumulate value without payout are a plus. Otherwise plan when is most advantageous or split expenditure into multiple years when possible.

When it comes to IMMRA, interest, dividends, and capital gains are items you can control.

Not entirely. You can have a stock position involuntarily bought for cash at an inopportune time due to a merger or acquisition.

Fortunately, I was spared that during my 'Obamacare years".

intercst

1 Like

Knowing about IRMAA and the impact starting at age 63, I planned to do the bulk of my Roth conversions through age 62. Another advantage in living in a low Cost of Living area: I may have capital gains when I sell my house in a few decades, but they shouldn’t be taxable capital gains.

Having a lot of untaxed capital gains doesn’t trigger a Medicare surcharge does it? Or is it one of those things that depends on a line on the 1040 that’s above the exemption?

Having a lot of untaxed capital gains doesn’t trigger a Medicare surcharge does it? Or is it one of those things that depends on a line on the 1040 that’s above the exemption?

IRMAA is calculated on your MAGI. Here’s what’s included.

https://turbotax.intuit.com/tax-tips/irs-tax-return/what-is-…

intercst

2 Likes

Another advantage in living in a low Cost of Living area: I may have capital gains when I sell my house in a few decades, but they shouldn’t be taxable capital gains.

In a few decades? Maybe, maybe not. You are assuming:
(1) The laws for capital gains on houses won’t change
(2) Housing inflation won’t push the gains your house over the fixed $500k (MFJ*) or $250k (Single, HOH) exemption amounts
*If you are currently MFJ, it also assumes that you will still be MFJ, or within 2 years of your spouse’s death, when you sell

Having a lot of untaxed capital gains doesn’t trigger a Medicare surcharge does it?

Under current laws, no. But see assumption (1)

That said - one-time capital gains, like from selling your house, would only trigger IRMAA for 1 year.

AJ

IRMAA is calculated on your MAGI. Here’s what’s included.

https://turbotax.intuit.com/tax-tips/irs-tax-return/what-is-…

Except there are multiple different MAGIs, with various adjustments, depending on what income rule they are modifying the income for. For IRMAA, it’s a lot simpler than the link indicates, with only 1 modification. From https://secure.ssa.gov/poms.nsf/lnx/0601101010

1. Modified Adjusted Gross Income (MAGI) is the sum of:

•the beneficiary’s adjusted gross income (AGI) (found on line 11 of the Internal Revenue Service (IRS) tax filing form 1040), plus

•tax-exempt interest income (line 2a of IRS Form 1040).

AJ

4 Likes

Another advantage in living in a low Cost of Living area: I may have capital gains when I sell my house in a few decades, but they shouldn’t be taxable capital gains.

I’d rather have huge capital gains even if taxes must be paid. Oh wait, I will unless I die owning the house.

2 Likes

Interest on tax free bonds is definitely included in MAGI. Not sure about tax exempt capital gains on sale of your home.

That article is a bunch of garbage.

aj noted one significant error. Here’s another:

The list of modifications to AGI include a bunch of things that are ALREADY part of AGI. Things like passive losses, IRA deductions, the deduction for 1/2 of self employment taxes and a couple of others are already part of AGI. You don’t need to deduct them again. So it’s very misleading.

If you have that article linked as a good reference source, I’d delete it.

–Peter

6 Likes

Another advantage in living in a low Cost of Living area: I may have capital gains when I sell my house in a few decades, but they shouldn’t be taxable capital gains.

I’d rather have huge capital gains even if taxes must be paid. Oh wait, I will unless I die owning the house.

I suppose it seems logical to prefer having a (for example) $400K gain to a $200K gain, thanks to your house doubling in value over however many years. But, what you seem to have forgotten is that you paid about double for the down payment and monthly payments, and maybe even property taxes, etc. So, there’s the foregone gains on all the “extra” money that could have been put into investments…along with the money itself that wasn’t spent on the more expensive house.

2 Likes

I suppose it seems logical to prefer having a (for example) $400K gain to a $200K gain, thanks to your house doubling in value over however many years. But, what you seem to have forgotten is that you paid about double for the down payment and monthly payments, and maybe even property taxes, etc. So, there’s the foregone gains on all the “extra” money that could have been put into investments…along with the money itself that wasn’t spent on the more expensive house.

Sure, but taken to its extreme and absurd conclusion, this also implies that I’d be better off to take the money I’ve spent on housing expenses over the years and invested it while living under a bridge so that I would presumably have a big pile of money from all that savings and investment gains.

No thank you.

13 Likes

I suppose it seems logical to prefer having a (for example) $400K gain to a $200K gain, thanks to your house doubling in value over however many years.

Think much, much bigger on the gain and while the property taxes have gone up, it hasn’t been particularly fast. Didn’t pay double anything - bought the cheapest house in an expensive neighborhood with little to no additional development available in a prime location. This WAS the best investment as it turned out.

3 Likes

I suppose it seems logical to prefer having a (for example) $400K gain to a $200K gain, thanks to your house doubling in value over however many years. But, what you seem to have forgotten is that you paid about double for the down payment and monthly payments, and maybe even property taxes, etc. So, there’s the foregone gains on all the “extra” money that could have been put into investments…along with the money itself that wasn’t spent on the more expensive house.

Sure, but taken to its extreme and absurd conclusion, this also implies that I’d be better off to take the money I’ve spent on housing expenses over the years and invested it while living under a bridge so that I would presumably have a big pile of money from all that savings and investment gains.

No thank you.

Don’t know why you came up with the “living under a bridge” conclusion. My post was regarding the advantage in living in a low cost of living area. You may make less raw profit if your less expensive house doubles in value compared to the doubling of a very expensive house in a high COLA area. But, your lower house payments leave more money to invest elsewhere over the period where the houses doubled in value.

Obviously, living as a pauper in any area leaves you with more money to invest or spend or give away. But that has nothing to do with living in a more affordable area and investing more vs. the opposite scenario. However, the tax regulations don’t reflect that difference. That is, gradually spending your IRA and a one-time small cap gains event lets you manage your taxes (income + IRMAA + other) easier than having a large one-time cap gains event thanks to that much more money tied up in your house. The federal income tax breakpoints and IRMAA penalty levels are the same whether you live a comfortable life on XXX dollars in a low COLA area or much more than that for an equivalent lifestyle in a high COLA area.

3 Likes