MY HUSBAND AND I are planners. We can tell you where we’ll be living 15 years from now, the trip we plan to take in 2022 and how much we’ll likely pay in taxes this year.
What we didn’t plan for: Paying more for Medicare—a lot more.
If you’re covered by Medicare, you’ll likely know that this year you pay $148.50 in monthly premiums for Medicare Part B, plus a premium for the Part D prescription drug benefit, which is $51.20 a month each for my husband and me. What you may not realize is that if you have a good year financially—in our case, we sold a piece of real estate—you may pay quite a bit more.
The Social Security Administration calls this IRMAA, short for income-related monthly adjustment amount, and it hinges on your tax return from two years earlier. IRMAA is determined by taking your adjusted gross income and adding your tax-exempt interest. In the notice you get from the Social Security Administration, this amount is referred to as your modified adjusted gross income (MAGI).
If your MAGI in 2019 was $88,000 or more and you’re single, or $176,000 and above and you’re married, you’ll pay more in Medicare premiums in 2021. The Part B and Part D combined monthly surcharge can be anywhere from $71.70 to $433.50—and that’s only for one of you. A married couple could be paying an additional $867 every month, equal to more than $10,000 a year. Your surcharge is recalculated each year.
I know what you’re probably thinking. Should someone who benefited from a good financial year be whining? Perhaps not. But for us, it was more the element of surprise. The planners in us asked, “How could we have done this differently?”
Could we have sold the property before we were eligible for Medicare? Doubtful. Could we have worked with the buyer to be paid over a period of years? Maybe. Although we knew there would be Medicare premium adjustments at a certain income level, we had no idea it would be so much.
In a phone conversation my husband had with Medicare, the representative told him to fill out Form SSA-44, which you can use to request a reduction in your IRMAA surcharge if you were subject to certain life-changing events. These events include the following:
No, our long-term capital gain didn’t qualify.
While we were delving into the ins and outs of IRMAA, we realized another surprise will eventually come our way. What will happen to our tax bill when one of us is no longer here? If our income remains the same but one of us is now filing as a single individual rather than as a couple, the surviving spouse will likely be in a higher tax bracket and face a much steeper tax bill.
Just something to think about and plan for. What’s the old saying? Forewarned is forearmed.
Sonja Haggert’s previous articles include Friend Requests, Right Turn and Getting Used. She’s the author of Invest, Reinvest, Rest. You can learn more at SonjaHaggert.com. Follow her on Twitter @SonjaHaggert.