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Dear Matt,

When referring to IRMAA in your book you say, “if you make a lot of money or have a lot of money, you pay more for Medicare.” What is your definition of a lot of money? What “counts” towards IRMAA?

Many thanks!

Stephanie S.

 


 

Stephanie,

It seems like IRMAA is on everyone’s mind these days because; I get many emails about it. She’s very popular, but she’s not well-liked for some reason. You can find the statement you quoted and all about IRMAA in the very first chapter of my book. IRMAA can impact your Medicare Part B and your Medicare Part D premiums, even if you have a Medicare Advantage (MAPD) plan. 

What Counts Towards IRMAA?

Since I already have a blog post about IRMAA, which outlines the 2022 IRMAA brackets and thresholds, click that link to see what they are if you need to.

 

If you’ve got a good handle on that, then here’s what I meant by my quote, “if you make a lot of money or have a lot of money, you pay more for Medicare.”  

If you “have a lot of money,” meaning you have saved/invested and now have lots of money and monetary benefits (Social Security, for example) that, when distributed, count as MAGI towards IRMAA, she’ll get you. In other words, IRMAA-designated income and cash flow that’s taxable when you’re on Medicare are what counts towards MAGI.    

Social Security looks at your MAGI on your taxes two years before making the determination, and it can happen no matter your age when you’re on Medicare. Social Security just sends you a letter when they feel like it. It can happen when you’re 65, and it can happen when you’re 85.   

I’m not an accountant, nor am I a tax expert. I don’t even pretend to like taxes. I’d recommend you speak with an accountant if you plan your Medicare Part B and D timing and think IRMAA might apply to you. A bit goes into it, including tax filing status and the tax treatment of assets and income. Please don’t consider this financial or tax advice.

What Counts Towards IRMAA and MAGI?

Capital gains count, as do wages, Social Security benefits, pension income, rental income, interest, dividends, and distributions from any tax-deferred investment like a Traditional 401(k)s or traditional (but not Roth, with caveats) IRAs.

What Is MAGI?

For starters, MAGI doesn’t have anything to do with the three wise men, nor is it a gift. MAGI stands for Modified Adjusted Gross Income.  

Your MAGI is your adjusted gross income as shown on your tax return, plus any tax-exempt interest income you received. In other words, MAGI is your adjusted gross income with some of your deductions “credited.” Common deductions are half of the self-employment tax, excluded foreign income, interest from EE savings bonds used to pay for higher education expenses, losses from a partnership, passive income or loss, and rental losses.

There’s also the potential cap gains exclusion you may qualify for that wouldn’t apply to your MAGI on the sale of a primary residence. I believe that’s limited to $250/$500k Home Sale Tax Exclusion. https://www.irs.gov/taxtopics/tc701. Second vacation home sales are counted as cap gains. Here’s a decent summary from Investopedia:  https://www.investopedia.com/terms/m/magi.asp

So there you go, Stephanie. Your IRMAA “surcharge” is calculated off your MAGI. Social Security looks two years backward to see how much your MAGI was to determine if you’ll pay more for your Medicare Part B and Medicare Part D benefits.  Don’t forget you have a right to appeal that decision if it occurs. The Helpful Links section of the Prepare for Medicare website is located twelve links down from the top.

I hope that helps, Stephanie!

I love answering Medicare questions. Send me yours by clicking here and I’ll pick a few for a future blog post!

To your wealth, wisdom, and wellness!

-Matt Feret

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Author Bio Matt Feret is the author of the Prepare for Medicare book series and launched prepareformedicare.com to help people get objective answers to questions about Medicare. Matt is also the host of The Matt Feret Show. He has held leadership roles at numerous Fortune 500 Medicare health insurers in sales, marketing, operations, product development, and strategy for over two decades.