Medicare premium IRMAA effect

Investing Strategies Retirement Investing
1

We hear warnings about getting too much taxable income and crossing a MAGI breakpoint which will increase your Medicare premium.
This extra charge, called IRMAA, is based on your MAGI with a 2 year lag. MAGI is basically your AGI plus. For simplicity, assume MAGI is the AGI.

My employer’s post-retirement, pre-medicare health insurance was $1000 per month each. The highest Medicare premium is $578 per month each – for a couple with $750,000 income. That’s still about half what my employer’s plan was. And that high only for a couple with a super high income. Doesn’t really seem that onerous.

I wanted to get an idea of how much the IRMMA would be in relation to the AGI and the income tax as the AGI crosses over the IRMAA breakpoints. The table below shows the ranges of each ITMAA bracket.

The below table is for a couple filing MFJ using 2022 figures.


AGI / bkpt    Taxable   IRMAA ttl   Tax-MFJ
$181,999      $154,199     $0      $25,421
$182,000      $154,200     $1,632  $25,421  <<< breakpoint
$227,999      $200,199     $1,632  $35,541
$228,000      $200,200     $4,080  $36,090  <<< breakpoint
$283,999      $256,199     $4,080  $49,530
$284,000      $256,200     $6,528  $49,530  <<< breakpoint
$339,999      $312,199     $6,528  $62,970

It doesn’t seem like it is very important to take extraordinary measures to avoid crossing an IRMAA threshold. It’s more of a “prefer to avoid”.
Although, you don’t want to cross a threshold by $1. That $1 may cost you two thousand dollars.

1/29/22 Medicare premium IRMAA effect.txt

8 Likes
2

This extra charge, called IRMAA, is based on your MAGI with a 2 year lag. MAGI is basically your AGI plus. For simplicity, assume MAGI is the AGI.

What does the two year lag mean? Thx.

3

What does the two year lag mean? Thx.

He’s probably referring to the 2 year look back at income for determining Medicare rates. For example, you would start Medicare at 65, but the rates are determined by what your MAGI for the age of 63.

IP

2 Likes
4

It doesn’t seem like it is very important to take extraordinary measures to avoid crossing an IRMAA threshold. It’s more of a “prefer to avoid”.

As a single, it feels like a much bigger deal to me.

3 Likes
5

https://www.medicare.gov/your-medicare-costs/part-b-costs

Interesting on the MAGI look back, thanks!

I’m not sure how to paste a table, but the link above includes different tax filing options and the costs of medicare part B according to income.

nag

6 
I think Rayvt's table got truncated-

There 2 more MFJ tiers above $340,000:
         MAGI                   IRMAA Surcharge per couple
Tier 4- $340,001 – $750,000 	$8,981
Tier 5- >$750,00 	        $9,792

(Too lazy/incompetent to post the total MFJ taxes)

FWIW, IRMAA is another example of the widow's tax trap-

For Singles, IRMAA Tier 4 starts $170,001 vice MFJ Tier 4 >$340,001

$170K in retirement is a nice income, but does it merit being taxed like a couple making $340K? An extra $4,490 in Medicare means testing isn't going to 
break the bank, but it's a big PITA.

Another reason to Roth convert as required to keep Single income (RMDs) under control in your late 70s & 80s.

One other tax to keep an eye on for widows is the NIIT 3.8% cap gains surcharge. Single $200k threshold is actually generous compared to MFJ $250k, but 
*neither* NIIT number is indexed for inflation, thus more future taxpayers will get touched by NIIT over time.
2 Likes