IRMAA
The Medicare Tax or Penalty For The High Income Earner
The Income Related Monthly Adjustment Amount (IRMAA), is the additional amount that you will pay for your Medicare Part B premium and your Medicare Part D premium if your income exceeds a certain limit.
Why Is My Premium So High?
I have found that most high-income earners have no idea they are going to be hit with this additional premium (which is really a tax or a penalty fee for earning too much money) when they become eligible for Medicare Part B and/or Part D.
Medicare/Social Security use what is called MAGI…not the wise men that visited Jesus, but the Modified Adjusted Gross Income of an individual or couple to determine their extra tax/penalty…I mean premium.
Part B Premium 240% Higher!
For 2021, the current Part B premium for most people is $148.50. But, for the high-income earner or even for the person that had a windfall of money due to an inheritance, capital gains, legal settlement, sale proceeds, etc. in the past two years—that premium can jump from 40% to 240%.
If you are a high-income earner or have had a financial windfall in the past two years, you should check with Social Security to see what your IRMAA will be.
Want to avoid and lower your IRMAA?
1. Appeal it: There’s always the possibility that the income information Social Security has on you is wrong.
2. Be proactive and try to avoid certain and sudden financial windfalls. Talk to your CPA and/or financial advisor. Financial windfalls would include: Selling a business, converting your traditional IRA or 401K into a Roth IRA, receiving an inheritance, turning company stock options into cash, capital gains from selling a home, and withdrawing too much from a retirement account.
3. Donate money to a charity: There are right and wrong ways to do this…ask your CPA for advice.
4. Consider purchasing an annuity, but not any annuity. A QLAC (Qualified Longevity Annuity Contract). Talk to me and your CPA about this.
