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DH turned 65 in 2017 and I signed him up for Medicare. I turned 65 in 2018 and I signed up for Medicare.

Being new to Medicare, I didn't know that there is a "high income" bump-up for Medicare premiums (in our case, "deductions" from Social Security).*

In 2017, Congress passed a new tax law which reduced tax rates on the middle class. This is temporary and will be reconsidered in 5 years (2022). I figure that deficits will be skyrocketing so the tax rates will probably be increased to the original brackets, if not more.

So I decided to use this temporary lower tax rate window to take distributions out of my Traditional IRA, pay the tax at current rates, and roll the money into my Roth IRA.

The problem is that I took out enough in 2018 that our income was higher than the "high income" Medicare bracket. Most of our "high income" was the IRA lump-sum distribution reported on a 1099R. As soon as I learned about the Medicare high-income bracket I wanted to re-characterize the Roth IRA back to the Traditional IRA. This was allowed in previous years but the 2017 law disallows this. So I'm stuck with one high-income year.

https://www.ssa.gov/pubs/EN-05-10536.pdf


To determine if you’ll pay higher premiums, Social Security uses the most recent federal tax return the IRS provides to us. If you must pay higher premiums, we use a sliding scale to make the adjustments, based on your modified adjusted gross income (MAGI). Your MAGI is your total adjusted gross income and tax-exempt interest income.If you file your taxes as “married, filing jointly” and your MAGI is greater than $170,000, you’ll pay higher premiums for your Part B and Medicare prescription drug coverage.


In 2019, I made another distribution from my Traditional IRA but was careful to keep the amount under the Medicare high-income level.

I just received a letter from the Social Security Administration saying that my Medicare Part B premium will be increased $70 per month based on our 2018 income tax return. I'm sure that we will soon receive an identical increase for DH. My mistake is going to cost us an additional $1,680 in 2020.

The Medicare information says:

What if my income has gone down?

If your income has gone down due to any of the following situations, and the change makes a difference in the income level we consider, contact us to explain that you have new information and may need a new decision about your income-related monthly adjustment amount:
• You married, divorced, or became widowed;
• You or your spouse stopped working or reduced your work hours;
• You or your spouse lost income-producing property because of a disaster or other event beyond your control;
• You or your spouse experienced a scheduled cessation, termination, or reorganization of an employer’s pension plan; or
• You or your spouse received a settlement from an employer or former employer because of the employer’s closure, bankruptcy, or reorganization.

If any of the above applies to you, we need to see documentation verifying the event and the reduction in your income. The documentation you provide should relate to the event and may include a death certificate, a letter from your employer about your retirement, or something similar.

If you filed a federal income tax return for the year in question, you need to show us your signed copy of the return. Use Form SSA-44 Medicare Income-Related Monthly Adjustment Amount – Life-Changing Event to report a major life-changing event.

If your income has gone down, you may also use Form SSA-44 to request a reduction in your income-related monthly adjustment amount. You can find Form SSA-44 online at www.socialsecurity.gov/forms/ssa-44.pdf.
[end quote]

I have questions about this.
1. Since the Traditional IRA distribution does not fit into any of the above categories, is there any way to reverse increase in the Medicare deduction in 2020 (which is based on the high-income year of 2018)? Income reported on a 1099-R is added to Total Income along with other ordinary income (e.g. interest, etc.) and is not broken out separately.

2. Will the Medicare deductions decrease automatically in 2021 due to lower income in 2019 or will Medicare maintain the higher deductions (based on 2018) indefinitely?

I would appreciate guidance on how to address this.
Thanks,
Wendy

*We chose to receive Social Security now since neither of us expects to live long enough to break even if we start receiving Social Security at a later age.
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We got our Medicare rate increase reversed because my wife retired just before Medicare started and leaving a job was a reason for reversing. At worst you can apply and have it denied.

I've also withdrawn money from our IRAs just before year end to maximize our now lower income tax bracket and without hitting the increased Medicare cost. Since there are a lot of end of year transactions over which I have no control, it's possible to withdraw too much. If you withdraw too much there's a 60 day window in which part or all of the withdrawal can be reversed. Assuming the reversal takes place in the next calendar year, the 1099 provided by the IRA administrator does not show the reversal, so a note is needed with your return.

Additionally, the reversal is only available once per 12 month year, so, one year withdrawals are made from my IRAs, the next my wife's. If a reversal isn't needed, then it doesn't matter which IRA is used.

I time the withdrawals during the last week of the year, maximizing the opportunity to get my taxes done so I know if a reversal is needed. I generally try to leave a $5k margin of error.
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I await the answers to both of your queries. First, I am trying to time our withdrawals from our sheltered accounts to put our income at about $165K so that even if we miscalculate and put our total income a little bit over 165K, we will raise our marginal rate by only 2% but not hit the increased Medicare premium for running over $170K.

Second, Medicare is claiming that we will owe the increased premium when Ispouse files for Medicare in January 2020, because they are using our earnings from 2018 as a basis for determining our Medicare premium despite the fact that I retired 12/31/2018, and Ispouse retired 1/31/2019. Even with the withdrawals from deferred accounts, our income will be much lower this year than last and should not subject us to increased premiums when spouse files for Medicare in 2020. So we need to figure out how to reverse that determination.

Third, I need to figure out whether my tax free municipal bond income counts toward determining my Medicare income threshold, to help me figure out how much I can safely withdraw.

Plus I need to read the responses to the queries to help me figure out what other questions to ask.
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I retired 12/31/2018, and Ispouse retired 1/31/2019

Medicare has a form for that. They'll refund any over payment made.

https://www.hhs.gov/about/agencies/omha/the-appeals-process/...
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I retired in 2013 at the age of 68. I claimed my Social Security workers benefit in February, 2013. My wife claimed her Social Security spousal benefit based on my work record at the same time. She was 66 at the time.

I had intended to retire from work at the end of December 2012 but my employer conned me into working another month to ensure that the IT Networking Group was sufficiently able to assume the networking functions that I had maintained for over 30 years since working on the DARPAnet.

The problem that I ran into by delaying my retirement by a month is that in addition to my salary I was paid for unused 2012 holidays that I couldn't take as a result of my final corporate project, banked vacation pay, and using an NUA to empty my 401(k) account I exceeded the income that triggered the higher premiums for Medicare Part B and Part D.

In 2014, I was notified that my Medicare premiums would double. My wife was notified that her premiums would double, as well, although she had never been employed outside of the home. Obviously, that sucked but.

The good news was that my income fell into the 10% marginal tax bracket in 2014. We received notices from Social Security that our Medicare premiums would be reduced in 2015.
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MCCrockett writes,

The good news was that my income fell into the 10% marginal tax bracket in 2014. We received notices from Social Security that our Medicare premiums would be reduced in 2015.

</snip>


Yeah, that's an important point. If your income rises above the threshold for the higher Medicare premium, people obsess over it like the higher payment is in perpetuity. If you can get your income back down in subsequent years, it disappears.

Still, it makes sense to be aware of it and plan accordingly. You'd hate to exceed the threshold by $20 and then be hit with a $800 (single) to $1,600 (married) additional Medicare premium.

intercst
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In 2017, Congress passed a new tax law which reduced tax rates on the middle class. This is temporary and will be reconsidered in 5 years (2022). I figure that deficits will be skyrocketing so the tax rates will probably be increased to the original brackets, if not more.

So I decided to use this temporary lower tax rate window to take distributions out of my Traditional IRA, pay the tax at current rates, and roll the money into my Roth IRA.



I can't add to the information that others have provided, but wanted to thank you for bringing up this topic. I have been planning to convert regular IRAs to Roths between ER (age 61, I hope) and when I take social security. The purpose is to take advantage of lower tax brackets and also to reduce taxable income once SS starts (probably 67) to minimize provisional income and thus minimize taxes on that SS. Now I see that there's an additional incentive to completing the process before age 65.

Additional question for the board: Is there an advantage to concentrate on my IRAs until I'm 65, and in that year do my wife's IRA who will be 64 that year and not on Medicare?
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Hi Wendy
I didn't know that there is a "high income" bump-up for Medicare premiums (in our case, "deductions" from Social Security).*

The Income-Related Monthly Adjustment Amount, or IRMAA, came about as a surtax to the Medicare Part B premium as part of the Medicare Modernization Act of 2003 and in 2011 was expanded to a higher % surtax per income bracket and added this surtax to Medicare Part D. The surtax for a given year is based on the Modified AGI of two years previous.

To your questions:

1. No, assuming none of the exceptions applies to your household (discontinued working, part of income was one-time severance pay, etc). The Roth conversion, as you noted, is irreversible. And because this is based on financial events that have already happened and cannot be undone your MAGI for 2018 is what it is.

2. Yes, providing your MAGI drops below the IRMAA threshold.

We faced a similar situation due to the sale of highly appreciated stock along with a new part time teaching job I hadn't expected. But even adding in the muni bond interest we managed to squeak in under the $170K. Remember, these dollar levels are triggers, not phase-ins, so even if you're $1 over the IRMAA trigger, the whole surcharge for the bracket will apply.

Tax planning and, at least for us, the use of Excel, is important.

**********************************************************************************************

In response to the question from TheBreeze

Is there an advantage to concentrate on my IRAs until I'm 65, and in that year do my wife's IRA who will be 64 that year and not on Medicare?

When you say "concentrate", I assume you mean do Roth conversions. The financial advantage to timing Roth conversions is to do enough conversion amount to raise your taxable income (not AGI) up to the top of the 12% bracket. But be careful....if you have long term capital gains + Qualified Dividends (you can add them together as they are taxed exactly the same) that when stacked on top of taxable ordinary income (all ordinary income minus standard/itemized deduction), and then draw a horizontal line at the top of the 0% tax level for QD+LTCG ($78,750 for married filing joint for 2019), if this line cuts through the QD+LTCG amount stacked on top of ordinary taxable income, the next dollar you add of ordinary income will be taxed at 27% (Federal...state tax may be in addition). Thats 12% in the 12% bracket + 15% for the dollar that is 'lifted' up above the $78,750 threshold.

I have this graphic built into an Excel worksheet that your welcome to if you send me an e-mail at incomeonly at comcast dot net.

BruceM
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1. Since the Traditional IRA distribution does not fit into any of the above categories, is there any way to reverse increase in the Medicare deduction in 2020 (which is based on the high-income year of 2018)? Income reported on a 1099-R is added to Total Income along with other ordinary income (e.g. interest, etc.) and is not broken out separately.

For some reason the Form 44 link doesn't work, but I was able to find it by looking through the Forms list on the SS website. It says that you do not have to fill out the form to ask the SSA to use more recent income information, and gives a number to call. Here's the correct link to the form https://www.ssa.gov/forms/ssa-44-ext.pdf I would suggest calling and asking if your 2019 income can be used.

2. Will the Medicare deductions decrease automatically in 2021 due to lower income in 2019 or will Medicare maintain the higher deductions (based on 2018) indefinitely?

Yes, it should. If it doesn't, then you should again call.

AJ
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Additional question for the board: Is there an advantage to concentrate on my IRAs until I'm 65, and in that year do my wife's IRA who will be 64 that year and not on Medicare?

Assuming that this question is about the potential of an increase to your Medicare premium:

As a joint filer, the Medicare premium trigger is based on your joint income. So if doing a conversion of some/all of your wife's IRA will put you over the trigger amount of $170k, then you will be charged the additional premium, even though it was your wife's IRA that was converted. So from that perspective, it doesn't really matter.

If one of you has basis (non-deductible contributions) in your IRA, the basis will reduce the amount of taxable income that's attributed to the conversion, so you may want to wait to do conversions on that person's accounts until the year that Medicare premium would be calculated from (2 years prior to beginning Medicare), since you will be able to convert slightly more without hitting the income trigger.

Please keep in mind that if you have an HSA, you can reimburse yourself with tax-free income for Medicare Part B, Medicare Part D and Medicare Advantage (but not Medigap) premiums from the HSA.

AJ
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Please keep in mind that if you have an HSA, you can reimburse yourself with tax-free income for Medicare Part B, Medicare Part D and Medicare Advantage (but not Medigap) premiums from the HSA.

Thank you for this. I didn’t realize I and as someone who files single, I am getting hit with the income surcharges. Are the surcharges considered part of the cost of Part B ?
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Are the surcharges considered part of the cost of Part B ?

Yes, the surcharges are additional premiums you paid for Part B, and as Part B premiums, they are currently qualified medical expenses.*

Also, as with all HSA expenses, prior year expenses that occurred after the HSA was established are eligible to be reimbursed at any time, as long as you have the documentation, so you haven't lost the ability to reimburse yourself for premiums from years before you were aware that these Medicare premiums were eligible expenses.

*The "Health Savings for Seniors Act" which is under consideration in the House, would designate Medicare as insurance that is eligible for contributing to HSAs, but take away the ability to use HSA money to pay for premiums.

AJ
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Wendy,

We fell into the Medicare high income trap after selling a rental unit one year. Ah boy, it hurt!

#1) Reverse the increase question....Not that I know of. Medicare part B is based on your total taxable income and if you went over $170,000 in 2018, you are stuck. If you have a "$0" RX Medicare advantage plan, you will probably end up paying RX premiums as well.

#2 Good news is the increase is only for a year IF you keep your income under the Medicare high earner threshold.
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Whoops, I didn't realize your questions had been answered...only saw the first two posts.
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Also, as with all HSA expenses, prior year expenses that occurred after the HSA was established are eligible to be reimbursed at any time, as long as you have the documentation, so you haven't lost the ability to reimburse yourself for premiums from years before you were aware that these Medicare premiums were eligible expenses.

Fortunately this is only since August ;)

Thank you !
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If you are on medicare and self employed, you can deduct the IRMMA charges as self employed health insurance costs.

5
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If you are on medicare and self employed, you can deduct the IRMMA charges as self employed health insurance costs.

</snip>


That's true, but then you're paying a ton of FICA you'll never get back on an income high enough to trigger the additional Medicare premium.

intercst
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However, IRMMA is calculated using income 2 yrs ago. Your income may be down now but you still get to pay the IRMMA...I'll take the deduction!
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AJ

Please keep in mind that if you have an HSA, you can reimburse yourself with tax-free income for Medicare Part B, Medicare Part D and Medicare Advantage (but not Medigap) premiums from the HSA.

That's a golden nugget. Thank you for sharing

Roberta
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Please keep in mind that if you have an HSA, you can reimburse yourself with tax-free income for Medicare Part B, Medicare Part D and Medicare Advantage (but not Medigap) premiums from the HSA.

</snip>


Health insurers make a lot more money off Medicare Advantage plans than Medigap, so they're doing everything they can to make Medigap unattractive.

For 2019, Medicare paid for-profit health insurers an average of $11,545 per enrollee. And of that $11,545, insurers were successful in skimming off an average of $1,608 in admin costs.

https://www.kff.org/report-section/financial-performance-of-...

Medicare also pays an insurer more money for sicker patients. Over the past 3 years, an estimated $30 Billion overcharge due to for-profit insurers exaggerating how ill the Medicare patients on their books really are.

https://www.npr.org/sections/health-shots/2019/07/16/7409649...

Meanwhile, the average Medigap plan premium was $152/month ($1,824/year) for 2019. Insurers average about a 14% skim rate on Medigap, so that's only $255 per year to the insurer.

If you believe higher admin costs improve your healthcare, Medicare Advantage is definitely the way to go.

intercst
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It may be around the Dallas area, if you turn 65, you won't be able to see a lot of doctors unless you sign up for Medicare Advantage plans.

My doc and his practice of about 40-50-60 docs will not accept new Medicare patients - only those on Medicare Advantage. They will, for the time being, continue to see legacy patients who are on Medicare......so far, so good. But, who knows, eventually I might be forced to sign up for Advantage to continue there.

Even if you've been going to them for 20 years, if you turn 65 now, it's Medicare Advantage or out the door.

They're one of the largest providers in this town and I suspect others will be following in their footsteps shortly. (they have 3 different buildings in 3 different towns they rotate through as well - a few days here, few days there).

My heart doc is not with them, nor is my ear doc.

t.
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tele writes,

It may be around the Dallas area, if you turn 65, you won't be able to see a lot of doctors unless you sign up for Medicare Advantage plans.

</snip>


That wouldn't surprise me in a place like Texas where they tend to manage things to screw as many people as possible. <LOL>

But if you look at the actual data, there's little evidence that people have a problem finding doctors when they switch to Medicare. It's mostly a talking point on Fox News, or a sales pitch for Medicare Advantage plans.

https://www.retirementliving.com/do-all-doctors-accept-medic...

</snip>


The large Doctor's Clinic in Vancouver WA that I currently use says they only take Medicare Advantage for Primary Care Physicians, but will accept Medigap if you're seeing a specialist. I won't have any problem dropping them like a steaming bag of dog poo, if my Primary Care Doc won't see me unless I'm on Medicare Advantage.

intercst
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