Kelly Bullis: Medicare premium surcharge thoughts

Labor Day weekend. How about a trip down an unexpected road, related to seeing the fruit of our “labors” taxed in a most insidious way?

If you are old enough to be forced to be on Medicare, you probably have already experienced a socialistic action on the part of our federal government. I’m talking about charging for the exact same service, but setting the price based upon how much you make. Can you imagine if the grocery stores practiced this? Charge you a higher price for milk and eggs if your income is high enough. How preposterous! But that is what Congress did with Medicare. They set an arbitrary table to use how much income you make to determine how much Medicare insurance premium you pay. How does that old communist saying go? “For each according to his needs from each according to his means.”

By the way, this “system” Congress created is called the Income-Related Monthly Adjustment Amount, or IRMAA for short. It is based upon your modified adjusted gross income. You don’t get to count any deductions for charitable contributions (if you itemize) or mortgage interest against that. Currently, the cutoff for the lowest level of premiums is $97,000 for single individuals and $194,000 for marrieds. The government looks back to your 2-year prior tax returns to determine which tier you fall into. (Currently they are using the 2021 filed returns for determining 2023 benefit charges.)

Some things you can do to get your income under those trigger tiers.

If you have an IRA with Required Minimum Distributions being taken, you could have your IRA administrator pay all your charity giving directly out of your IRA. (Up to the first $100,000 of RMD can go to charity.)

You could investigate using Medicare Advantage. It is usually less expensive that using regular Medicare parts A, B and D as well as having a third party Medigap insurance policy. IRMAA still applies if your income is too high, but usually, those higher Medicare premiums are usually less than paying for all the other Medicare programs plus a Medigap policy.

You could do “tax gain harvesting” to plan ahead for IRMAA. Sell highly appreciated stocks before you go onto Medicare, then, after a minimal period, buy those same shares back (be careful and don’t get caught in Wash Sale Rules). Then when you sell those shares in future years, the taxable gains will be smaller, potentially not tripping you into a higher IRMAA tier.

Converting IRAs into Roth IRAs. Roth distributions are not taxable, thus not tripping the IRMAA tier problem. Best to do the Roth conversions before you go onto Medicare, but if not, then get it all done in one year, put up with the IRMAA premiums being high for one year and all future premiums being lower because you don’t have taxable IRA distributions anymore.

Have you heard? Psalms 37:25 says, “I have been young, and now am old, yet I have not seen the righteous forsaken, nor his children begging for bread.”

Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 775-882-4459. On the web at BullisAndCo.com. Also on Facebook.