Medicare & The IRMAA Cliff


What is IRMAA?

IRMAA stands for Income-Related Monthly Adjustment Amount and is often described as a tax on Medicare. If you’re an individual with income over $85,000/year, or part of a couple with income over $170,000/year, IRMAA will increase your Medicare premiums for Parts B and D.

The good news is that 95% of Medicare recipients will not face this higher cost. Some might say having to pay IRMAA is a good problem, but those who pay the higher fee rarely see it that way.

The amount you pay is based on your MAGI, or modified adjusted gross income from two years ago. The income brackets top out at $500,000+ for individuals and $750,000+ for couples.

With IRMAA, going just $1 into a higher income bracket could result in paying thousands more in Medicare premiums. This is known as the “cliff” and just a few dollars more in income can result in a significantly higher premium. Also, since IRMAA uses joint income for determining premiums, one high-earning spouse can force both spouses into a higher premium bracket.

What to Do

Plan with foresight and know the ramifications of your financial actions. Make sure that you and your financial advisor are aware that large stock trades, the sale of a house or business and other transactions may result in a jolt in your Medicare premium.

If your income drops significantly to due a one-time, life-changing event, you have the right to appeal for a lower premium by filing form SSA-44. Social Security considers any of the following situations to be life-changing events: the death of a spouse; marriage, divorce or annulment; retirement or reduced work hours for one or both spouses; loss of income-producing property due to natural disaster; or loss of a pension. Filing the form is particularly important during your first year of retirement.

One-time cash windfalls such as the sale of a vacation home, a large portfolio distribution or a Roth IRA conversion, do not qualify as a life-changing event and will result in a higher premium two years later.

I’m a licensed Medicare insurance broker in Tennessee and appointed with Aetna, Blue Cross, Cigna, Humana, United Health Care, and many more carriers. If you have questions on IRMAA or any other Medicare issue, please feel free to call me. Thanks.

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