I had an IRMAA issue similar to what you described - in January following my retirement I filed a form 44 documenting the income-reducing life-changing event. It was approved along with the lower IRMAA. Then 11 months later SSA sent a letter reversing the earlier decision, along with a $3,800 invoice for back payment. The point of confusion was the life-changing event occurred in one calendar year, and income was reduced in the following calendar year. I spoke to eight different Medicare and SSA agents who either agreed with me but wouldn’t do anything about it, or simply didn’t understand. I was offered the opportunity to appeal, but before doing so I was able to get in contact with a manager who actually listened to my argument. The manager fixed the problem. I will note that the newest version of the form has been revised to make it more clear. I feel fortunate I was able to reach someone who actually listened. I’ll also mention, the SSA calls the form 44 a “request for new initial determination” (not an “appeal”). The formal “appeal” is later if you disagree with the SSA’s response and is done with a form 561. It’s all very confusing.
Another potential bomb is receiving accrued vacation hours or sick leave as cash upon retirement. If retirement (pay out) is early in the year, you just live off those funds. If retirement is late in the year, such that you have a typical years earned income plus the vacation/sick leave pay out, your IRMAA penalty in the future can be very large. Fortunately there is the appeal process to avoid undue penalty pain, and this late year retirement scenario fits well within one of the eight allowable circumstances. Worked for me.
You definitely want to keep the year you are citing for estimated post-retirement income below the IRMAA threshold if possible. In other words give an estimate below the threshold, and then make sure your MAGI for that year stays at or below that estimate. You can begin your large Roth conversions the following year. If you do it right, you get three years of low/no IRMAA (your low income year, plus the following two years). If you do it wrong, your IRMAA for all three years will be based on the actual income of that first post-retirement year. So that first year is essentially triple jeopardy if you go over. I hope I'm saying this in a way that's understandable.
I figure I can work all the numbers and stress over a few $k, or or can execute my plan, pay any increases due to the plan now, then chill in the future once it all flows through in several years.
It sounds as if you cannot do Roth conversions in the two years leading up to starting on Medicare and then successfully appeal because you will no longer do them once on Medicare because there is no real life-changing event tied to the reduction in income...just a voluntary decision to stop doing conversions and keeping your MAGI under IRMAA thresholds....is that a correct interpretation?
Good analysis of these unique situations. Can you confirm if the right way to calculate your IRMAA marginal rate as described in Part 1 is not to divide the IRMAA cost by your AGI, but rather to subtract the first IRMAA bracket amount (i.e., $212,000 for a married couple this year) from your AGI and then use that number as the divisor for your IRMAA cost to get IRMAA marginal rate? This same divisor number would still be used even if you have crossed two or more IRMAA brackets.
I think most people would use the highest IRMAA threshold that you actually crossed, and subtract it from the MAGA to form the denominator. And then use the IRMAA penalty from only that zone as the numerator. But it depends on what you want to use it for. Your proposed way might be more appropriate if you are weighing some sort of all-or-nothing strategy. Both ways would still be called marginal rates, just over different income bands.
@@captsorghum I've thought more about this. I think a precise answer is to calculate the impact of each IRMAA threshold crossed independently of the others and then add the resulting marginal rates for each one together to get the total marginal rate. Example for 2025, married filing joint, both on Medicare: 2023 AGI = $380,000 2025 IRMAA Thresholds crossed: 3 2025 Total Annual IRMAA, Parts B&D for the couple: $8,470 Thresholds: $212,000 $266,000 $334,000 Divisors (AGI minus Threshold): $168,000 $114,000 $46,000 Annual IRMAA per Threshold: $2,105 $5,287 $8,470 Amount of their IRMAA charged within each threshold: $2,105 $3,182 $3,182 Threshold's IRMAA over its Divisor: 1.25% 2.79% 6.92% Total Marginal Rate (sum of the three percentages): 10.96%
@ Can you articulate in plain English what that 10.96% is supposed to represent? 10.96% of what? I can't see how that number would ever be useful. Most people would be interested in only the marginal rate for the last bracket-- i.e. 6.92%-- because that's where you would have made your 2023 decision whether to limit income to something below $266k vs. selling that stock or taking that IRA distribution that would bump your income to $380k. On the other hand, if that $380k was mostly from a single real estate sale that could NOT have been divided into smaller amounts, then something close to your original method would make sense. For example, if the $380k includes a $300k gain from a real estate sale in 2023. Then a reasonable calculation might be $8,470 / $300,000 = 2.82%, or a marginal tax rate of 2.82% of your 300k gain. In that case there's no sense in worrying about individual IRMAA brackets because the property sale was indivisible. That's what I meant by different marginal rates for different applications. But to be useful it has to represent something meaningful, i.e. the tax cost of a particular activity divided by the gain from that activity.
@@captsorghum You make a good point that some forms of income are not divisible. Also I'm now thinking that once my income has increased above a given threshold, that additional income is only affected by the next higher threshold - I've maxed out the lower threshold(s) so they no longer affect additional dollars. I guess its similar in that regard to the SS tax torpedo where your total marginal tax rate drops once your income is high enough to tax the maximum of 85% of your SS benefit. To answer your first question, I was thinking the 10.96% example is the marginal tax rate caused by IRMAA. You'd add that to your Federal and State marginal rates to get your total marginal tax rate, to aid in your decisions about whether or not to increase the amount of your ROTH conversion, or perhaps any other activity that could increase your income. I appreciate you taking the time to discuss this with me, with practical examples. As you can see from my original post, it isn't obvious how to correctly calculate IRMAA's impact on marginal tax rates. The Part 1 video briefly said you should not compare IRMAA to AGI to derive the IRMAA marginal rate, so that got me thinking about how to do this in my spreadsheet.
The marginal rate is calculated as the marginal cost for the marginal benefit Example: Say the first IRMAA bracket is at $210k mAGI, and costs $1,000 in a year, and your mAGI is $220k. Just for fun, let's say that the 22% ordinary tax bracket end at $215k so AGI above $215k is taxed at the marginal tax bracket of 24% until $400k. The $10k of AGI above $210 will have 3 parts to the total tax cost: $5k at 22%, $5k at 24%, and $1k IRMAA. The sum is $1,100+$1,200+1,000 = $3,300 tax, for a marginal rate of that $10k of 33% Had you exceeded the threshold by $1, then the marginal cost would still be $1,000 + 22¢ but your marginal benefit is $1. Not a great move This is why you see the advice to go up to just below the next IRMAA bracket if you have to cross one. That lets you spread pain over a larger benefit.
If you mistakenly made an excessive ROTH Conversion that, at some point triggers an IRMAA Penalty, but made the mistake only one time and stopped doing Roth conversion in later years, is this sufficient cause to seek a waiver of the IRMAA penalty because your income in later years dropped below the IRMAA Brackets due to the lack of additional Roth conversions?
The acceptable circumstance are listed on form SSA-44. Cessation of Roth conversions is not one of them. Listed events are {Marriage, Divorce/Annulment, Death of Spouse, Work Stoppage/Reduction, Loss of Income Producing Property, Loss of Pension Income, Employer Settlement Payment}
Here's what maximum sucks: If one sells one's house at age 63, IRS considers that sale as income for IMRAA purposes two years later. Yes, it's only for one year, but a home sale is not considered a valid reason to appeal for an IRMAA reduction, which is one of the biggest IRS code's BS aspects ever.
I am at the beginning of my "investment journey", planning to put 385K into dividend stocks so that I will be making up to 30% annually in dividend returns. any good stock recommendation on great performing stocks will be appreciated!!!
I don't really blame people who panic. Lack of information can be a big hurdle. I've been making more than $200k passively by just investing through an advisor, and I don't have to do much work. Inflation or no inflation, my finances remain secure.. So I really don't blame people who panic.
how would you recommend i enter the crypto market? I am also looking at studying some traders and copying their strategy rather than investing myself and losing money emotionally.. What's your take on this approach? and How can i reach her, if you don't mind me asking?
I had an IRMAA issue similar to what you described - in January following my retirement I filed a form 44 documenting the income-reducing life-changing event. It was approved along with the lower IRMAA. Then 11 months later SSA sent a letter reversing the earlier decision, along with a $3,800 invoice for back payment. The point of confusion was the life-changing event occurred in one calendar year, and income was reduced in the following calendar year. I spoke to eight different Medicare and SSA agents who either agreed with me but wouldn’t do anything about it, or simply didn’t understand. I was offered the opportunity to appeal, but before doing so I was able to get in contact with a manager who actually listened to my argument. The manager fixed the problem. I will note that the newest version of the form has been revised to make it more clear. I feel fortunate I was able to reach someone who actually listened.
I’ll also mention, the SSA calls the form 44 a “request for new initial determination” (not an “appeal”). The formal “appeal” is later if you disagree with the SSA’s response and is done with a form 561. It’s all very confusing.
Another potential bomb is receiving accrued vacation hours or sick leave as cash upon retirement. If retirement (pay out) is early in the year, you just live off those funds. If retirement is late in the year, such that you have a typical years earned income plus the vacation/sick leave pay out, your IRMAA penalty in the future can be very large. Fortunately there is the appeal process to avoid undue penalty pain, and this late year retirement scenario fits well within one of the eight allowable circumstances. Worked for me.
You definitely want to keep the year you are citing for estimated post-retirement income below the IRMAA threshold if possible. In other words give an estimate below the threshold, and then make sure your MAGI for that year stays at or below that estimate. You can begin your large Roth conversions the following year.
If you do it right, you get three years of low/no IRMAA (your low income year, plus the following two years). If you do it wrong, your IRMAA for all three years will be based on the actual income of that first post-retirement year. So that first year is essentially triple jeopardy if you go over.
I hope I'm saying this in a way that's understandable.
You are sooooo smart!!!!
I figure I can work all the numbers and stress over a few $k, or or can execute my plan, pay any increases due to the plan now, then chill in the future once it all flows through in several years.
It sounds as if you cannot do Roth conversions in the two years leading up to starting on Medicare and then successfully appeal because you will no longer do them once on Medicare because there is no real life-changing event tied to the reduction in income...just a voluntary decision to stop doing conversions and keeping your MAGI under IRMAA thresholds....is that a correct interpretation?
Good discussion to wrap up this topic. This should be very useful to your listeners. Larry, Central Valley, Ca.
Good analysis of these unique situations. Can you confirm if the right way to calculate your IRMAA marginal rate as described in Part 1 is not to divide the IRMAA cost by your AGI, but rather to subtract the first IRMAA bracket amount (i.e., $212,000 for a married couple this year) from your AGI and then use that number as the divisor for your IRMAA cost to get IRMAA marginal rate? This same divisor number would still be used even if you have crossed two or more IRMAA brackets.
I think most people would use the highest IRMAA threshold that you actually crossed, and subtract it from the MAGA to form the denominator. And then use the IRMAA penalty from only that zone as the numerator.
But it depends on what you want to use it for. Your proposed way might be more appropriate if you are weighing some sort of all-or-nothing strategy. Both ways would still be called marginal rates, just over different income bands.
@@captsorghum I've thought more about this. I think a precise answer is to calculate the impact of each IRMAA threshold crossed independently of the others and then add the resulting marginal rates for each one together to get the total marginal rate. Example for 2025, married filing joint, both on Medicare:
2023 AGI = $380,000
2025 IRMAA Thresholds crossed: 3
2025 Total Annual IRMAA, Parts B&D for the couple: $8,470
Thresholds: $212,000 $266,000 $334,000
Divisors (AGI minus Threshold):
$168,000 $114,000 $46,000
Annual IRMAA per Threshold:
$2,105 $5,287 $8,470
Amount of their IRMAA charged within each threshold:
$2,105 $3,182 $3,182
Threshold's IRMAA over its Divisor:
1.25% 2.79% 6.92%
Total Marginal Rate (sum of the three percentages): 10.96%
@ Can you articulate in plain English what that 10.96% is supposed to represent? 10.96% of what? I can't see how that number would ever be useful.
Most people would be interested in only the marginal rate for the last bracket-- i.e. 6.92%-- because that's where you would have made your 2023 decision whether to limit income to something below $266k vs. selling that stock or taking that IRA distribution that would bump your income to $380k.
On the other hand, if that $380k was mostly from a single real estate sale that could NOT have been divided into smaller amounts, then something close to your original method would make sense. For example, if the $380k includes a $300k gain from a real estate sale in 2023. Then a reasonable calculation might be $8,470 / $300,000 = 2.82%, or a marginal tax rate of 2.82% of your 300k gain. In that case there's no sense in worrying about individual IRMAA brackets because the property sale was indivisible.
That's what I meant by different marginal rates for different applications. But to be useful it has to represent something meaningful, i.e. the tax cost of a particular activity divided by the gain from that activity.
@@captsorghum You make a good point that some forms of income are not divisible. Also I'm now thinking that once my income has increased above a given threshold, that additional income is only affected by the next higher threshold - I've maxed out the lower threshold(s) so they no longer affect additional dollars. I guess its similar in that regard to the SS tax torpedo where your total marginal tax rate drops once your income is high enough to tax the maximum of 85% of your SS benefit. To answer your first question, I was thinking the 10.96% example is the marginal tax rate caused by IRMAA. You'd add that to your Federal and State marginal rates to get your total marginal tax rate, to aid in your decisions about whether or not to increase the amount of your ROTH conversion, or perhaps any other activity that could increase your income. I appreciate you taking the time to discuss this with me, with practical examples. As you can see from my original post, it isn't obvious how to correctly calculate IRMAA's impact on marginal tax rates. The Part 1 video briefly said you should not compare IRMAA to AGI to derive the IRMAA marginal rate, so that got me thinking about how to do this in my spreadsheet.
The marginal rate is calculated as the marginal cost for the marginal benefit
Example: Say the first IRMAA bracket is at $210k mAGI, and costs $1,000 in a year, and your mAGI is $220k. Just for fun, let's say that the 22% ordinary tax bracket end at $215k so AGI above $215k is taxed at the marginal tax bracket of 24% until $400k. The $10k of AGI above $210 will have 3 parts to the total tax cost: $5k at 22%, $5k at 24%, and $1k IRMAA. The sum is $1,100+$1,200+1,000 = $3,300 tax, for a marginal rate of that $10k of 33%
Had you exceeded the threshold by $1, then the marginal cost would still be $1,000 + 22¢ but your marginal benefit is $1. Not a great move
This is why you see the advice to go up to just below the next IRMAA bracket if you have to cross one. That lets you spread pain over a larger benefit.
If you mistakenly made an excessive ROTH Conversion that, at some point triggers an IRMAA Penalty, but made the mistake only one time and stopped doing Roth conversion in later years, is this sufficient cause to seek a waiver of the IRMAA penalty because your income in later years dropped below the IRMAA Brackets due to the lack of additional Roth conversions?
The acceptable circumstance are listed on form SSA-44. Cessation of Roth conversions is not one of them.
Listed events are {Marriage, Divorce/Annulment, Death of Spouse, Work Stoppage/Reduction, Loss of Income Producing Property, Loss of Pension Income, Employer Settlement Payment}
@ ok. Thanks!
Here's what maximum sucks: If one sells one's house at age 63, IRS considers that sale as income for IMRAA purposes two years later. Yes, it's only for one year, but a home sale is not considered a valid reason to appeal for an IRMAA reduction, which is one of the biggest IRS code's BS aspects ever.
I am at the beginning of my "investment journey", planning to put 385K into dividend stocks so that I will be making up to 30% annually in dividend returns. any good stock recommendation on great performing stocks will be appreciated!!!
I don't really blame people who panic. Lack of information can be a big hurdle. I've been making more than $200k passively by just investing through an advisor, and I don't have to do much work. Inflation or no inflation, my finances remain secure.. So I really don't blame people who panic.
how would you recommend i enter the crypto market? I am also looking at studying some traders and copying their strategy rather than investing myself and losing money emotionally.. What's your take on this approach? and How can i reach her, if you don't mind me asking?
I've just looked up her full name on my browser and found her webpage without sweat, very much appreciate this.