How Preparing to Retire Can Increase Medicare Premiums
Many people begin their retirement preparations a few years beforehand. Home remodeling, moving into senior-safe housing, selling investment properties for retirement income or emergency cash are common choices. Most consult their CPA beforehand and are prepared to pay the extra taxes. But how many are aware that only one year of increased annual income can increase Medicare Part B and Part D premiums 2 years later?
The cause is the Income Related Monthly Adjustment Amount (IRMAA). “IRMAA is an extra charge added to your premium based on your modified adjusted gross income as reported on your IRS tax return from 2 years ago”. One of my clients reported that although she had consulted with her CPA before selling off a rental property when she moved closer to family. She planned to pay the taxes and invest the profit to fund her retirement income. When she enrolled in Medicare 2 years later she was shocked at the high premiums she had to pay on her now modest income. She had to pay the higher rates for a year before her tax report used to calculate IRMAA showed her normal lower income rate.
Even if you are already enrolled in Medicare, IRMAA can be triggered by a one time increase in your annual income. It pays to plan ahead before:
- Taxable inherited funds
- Required Minimum Distributions (RMDs)
- Home sale (for example when moving to Assisted Living)
- Withdrawing cash from a tax-deferred account (such as an IRA, 401k, or 403b) for larger expenses.
- Medical bills
- Long term care costs
- Home repairs
- Vehicle replacement
- Trips