IRMAA: Medicare Tax

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This is the Truth Network. Welcome to Finishing Well, brought to you by cardinalguide.com, with certified financial planner, Hans Scheil, best-selling author and financial planner, helping families finish well for over 40 years. On Finishing Well, we'll examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing social security, Medicare, IRAs, long-term care, life insurance, investments, and taxes.

Now, let's get started with Finishing Well. Darrell Bock Welcome to Finishing Well, and today's show is Aunt Irma. You've always wondered if Uncle Sam had a bride. Well, his bride we're naming as Aunt Irma, she is the Medicare tax that we're going to be talking about today, right, Hans? Hans Scheil Yeah, we actually did a little cartoon where we drew a pretty nice picture of Aunt Irma, standing there just like Uncle Sam with her hand out.

Darrell Bock So the idea of this show is we don't want you to be surprised by Aunt Irma. But more than that, we think Jesus taught on Aunt Irma somewhat, to an extent, in Matthew chapter 17. Of course, Matthew being a tax collector, he jumped right on this idea. And it's a neat story, because to me, when you listen to it, it doesn't make a lot of sense what happened, certainly that Jesus was going to be having to pay this tax. But what happened was, you know, they got to Capernaum, and Peter goes in to the temple, and they're like, Well, are you guys going to pay the tax? Well, Peter says, Of course we are, you know, he doesn't even think before he talks, he goes back and before he can say a word, Jesus says, Well, Peter, what do you think, you know, does the king need to pay tax in his own kingdom?

Like, really, Jesus needs to pay tax to be in the temple? Jesus says something absolutely remarkable that just, I think every Christian needs to hear is, so that we don't offend, we're going to pay the tax. Peter, you're a fisherman, go fishing. This is what you can do.

And this is what you are capable of doing and quite good at. So go fishing, and the first fish you catch, you know, it's going to have this tax in its mouth. Again, the whole story doesn't make a lot of sense, because I don't know how many fish you've ever caught that had a four drachma coin in its mouth, but that's what Peter did. And he, of course, paid the tax. But there's so much here that really, when you think about it, Hans, the first thing that people get, it seems like when they find out they've been assessed in Irma, and which we got to explain what that is, they get offended, right?

Oh, yeah, they most of them become angry. I mean, it's like, I paid all this money in to Social Security and Medicare my whole working career. Now I'm on Medicare, you know, and then they get the old nobody, somebody and everybody and anybody. Nobody ever told me about this.

I didn't know about it, because it may for some of you listening on the radio, this is the very first time you've ever heard this. Yeah, I can't tell you the number of people, like two or three months after Medicare starts, usually the second month, you get this letter in the mail. And it's from Medicare, Social Security, the IRS. And it just very simply states, we pulled your 2019 tax return.

And you've filed single or you filed married filing jointly, and you made this amount. So you thought your Medicare Part B was going to cost you $148.50 a month, but you thought wrong, which your Medicare Part B is going to cost you $386.10 a month, as opposed to $148.50. And since you're not on Social Security yet, which many of these higher income people aren't, even though they may be retired, now you're going to have to send us in even more money quarterly to Medicare to make sure that you stay enrolled in Part B. And that just comes as a shock. And we first hear from some people, the first time we hear from them, when they get this letter, I mean, maybe they've watched my YouTube videos, or they've, you know, watched the Facebook thing, and they've thought about calling us, but then they end up doing it with somebody else or something, they enroll, and then, you know, I bet that guy knows something about it, and they'll call us up. And the first thing I do is I ask them to, you know, will you fax me the letter, will you take a picture of it with your phone and send it to me, because I want to read it. I pretty much know what it says, but I want to see the numbers. And people are just very angry, you know, and you really don't have a choice.

You just need to, it's like Peter, you know, and you got to pay it. Yeah, well, you know, realistically, from somebody who pays that quarterly, like if it was 300, and did you say 4650? 38610.

38610. So your quarterly payment is going to be over $1,000 for your Medicare. Oh, yeah.

And like, ka-ching, like, what? Yeah, that's not the highest amount. It could be as much as 504.90. Oh, my goodness.

The people in the highest income levels. And that's only part of it, because then your Part D plan, which you're paying a monthly premium, I don't know, how much do you pay for your Part D plan? Do you know? Like $16 or something, it's not much.

Yeah, like 16 bucks or whatever. So somebody that faces Irma at the highest level, they got to pay that $16, but they also have to pay an additional $77.10 a month for their Part D. So you got two hidden taxes for Medicare. And, you know, my purpose on this show is not to get you all riled up about it. And those are at the highest levels. And certainly a lot of people have incomes lower than these thresholds. So there's a lot of people that this isn't going to apply to. But I want to inform you about it.

And just so you know what it is. Yeah, and there's a lot of planning that can, you know, like Peter, you can go fishing. And that's, and there's a lot more fun to go fishing if you're Peter, than it is to be, you know, paying tax. So you know, the good news for us is, really, when we begin to look at how we can plan these things, it's a lot more fun than paying tax. Sure. So let's talk about what Irma is for a bit.

And then in the second part of the show, we'll, we'll get into some strategies that you can do. But so IRMAA is income related monthly adjustment amount. I mean, it almost sounds like somebody's trying to disguise this. So they're trying to make it sound pretty, you know, income related monthly adjustment amount, and then they turn it into an acronym. And it's called Irma. And that's probably why people don't read about it.

It's like, what's this? And it's just nothing more complicated than a Medicare surtax on people that have high incomes. So they call it a monthly adjustment. And what I'm going to call it as a tax. Yeah, the scary part is that that high income is it got a low threshold. Right?

Sure. So for an individual, the threshold is 88,000 of income or more. So if you're at 87,000 of they don't even make this part they don't even make this part easy, because you'd say, of income, or like gross income. But for those of you that mess with your taxes a little bit, they actually have this thing called adjusted gross income. So it's not good enough to just say income, you got to add gross income, which just implies income before deductions. And then you got this word, they throw adjusted on it, adjusted gross income, AGI. And a lot of folks that do their own tax return, they maybe kind of know what AGI is, adjusted gross income, but for this Irma thing, and a couple other things for seniors, they throw another they throw an M on there. So it's modified, adjusted gross income, or better yet called magic. You know, and I just I keep thinking about the magicians that come up with Pharaoh trying to make sense of what, you know, Moses and Aaron were telling him.

So it's magi magic. So it isn't as simple as just saying is your income less than 88,000? 88,000? Or is it more than 88,000 as an individual, but for the purposes of this show, we're not going to get into the magic and edgy and just if you make if you made less than 2019 than 88,000, you're probably all right, you're not going to face this, if you made more than 88,000, you are going to face it. And if you file the joint return, the number is exactly double, it's 176,000 or less, you don't have to pay any Irma, but if you made more than that in 2019, you're paying Irma in 2021. Okay. Right.

And it has a cliff thing. So if you go $1 over that, you pay the whole higher Irma amount. So if you made 176,010 dollars, say, your Medicare Part B premium is going to go from 148.50 to 207.90. So it'll be a surtax of about 60 bucks a month.

And then your Part D is going to have an additional $12.30 tacked onto it. So you put those two things together and you know, you're paying about another 72 bucks a month, just for going $1 over the threshold. Now, if you go to the highest amounts, and the highest amount would be you had more than $500,000 of adjusted gross income, which throws out a lot of people, obviously, or for a couple 750,000, the income level for that is, the Irma amount is $504.90. Now, there's a whole lot of room in that last category, the people that have more than 165,000 of individual income, they got to pay 475, 20 a month.

So it doesn't take a huge income to have a substantial Irma. And to make matters worse is they're using a two years ago tax return on people that are just now retiring. So you have a lot of people in their last years of a job, they recognize a lot of income, hey, you know, people that sell stock options, or people that cash in a 401k, or maybe they accidentally cashed it in because they listened to the people in HR, we got to make a check out to you, whatever. Maybe they were paid a bonus or a severance bonus. So people that two years ago, the 2019 return had a big income, but now they're retired, they have a much smaller income in retirement.

This is real frustrating to people. So probably about right now, you kind of feel like Peter did when those guys asked him about the tax, knowing how much money he had them on him right that minute. He had a big problem. But the good news is he went exactly to where the solution was.

He went to Jesus. And so we got some ways to fish on the other side of this break. Of course, you can find out so much more about Irma and solutions to these things in Hans's book, The Complete Cardinal Guide to Planning for and Living in Retirement, which is available, of course, at cardinalguide.com. Their website where you can listen to past shows, podcasts, all sorts of resources, the videos that we're talking about. It's all there at cardinalguide.com. So when we come back, we're going to do some fishing.

So stay tuned. Hans and I would love to take our show on the road to your church, Sunday school, Christian, or civic room. Here's a chance for you to advance the kingdom through financial resources by leveraging Hans expertise in qualified charitable contributions, veterans aid and attendance, IRAs, Social Security, Medicare, and long term care. Just go to cardinalguide.com and contact Hans to schedule a live recording of Finishing Well at your church, Sunday school, Christian, or civic group. Contact Hans at cardinalguide.com.

That's cardinalguide.com. Darrell Bock Welcome back to Finishing Well. In today's show, we're talking about Uncle Sam's wife, Aunt Irma. And just like Uncle Sam, she's got her hand out. And we're hoping, in the second segment today, we can catch some drachma coins for you so that you can, through our fishing with Peter, that you can help offset this and not offend them. So Hans, there are some answers.

Hans Jacob Well, there are. I mean, the first one and the easiest one is the appeal form for Irma. Okay? And you can't file an appeal until you actually get the Irma letter. We can start working on it with people. So when we're meeting people about Medicare, and we're talking about it, which is probably anybody in their 60s that's coming to us for financial planning. We're talking to them about Medicare and that it's upcoming. And then if they have income in the department, or anywhere near the department that this is going to come up, we talk to them about it.

And if they have if they're over these amounts, we prepare them for it. And then, you know, like, just retiring is a reason to do an appeal for Irma. I mean, it's just an appeal form. And I'm not going to get into the details of that other than it's probably a good idea to get some help with the Irma appeal. Because it's been my experience when people try to do this on their own, they write too long of an appeal.

And then they end up getting turned down because they give them all kinds of information and they write back for it. And we print, we've had pretty good success getting these appeals approved. And what you're doing when you do an appeal is you're just saying, look, my income two years ago was this. But now I'm retired, or my I've gotten divorced, or my spouse has died, or something has caused the economy, I lost my job with the Coronavirus, or just something has created a triggering event where my income now and going forward is going to be much less than it was two years ago. And so I want you to look at that we've had pretty good success getting those approved.

Yeah, yeah. For the, you know, you could say the fortunate ones, that their income two years ago is just repeating itself now and into the future. Well, then an appeal won't work because we got nothing to appeal on, they just make a good income.

And they always view this that they're paying a penalty for this. So it's not too late to start planning for it. Right when they get this thing, but it's much better with planning is to been doing it two or three years ago. So those of you that are in your early 60s, late 50s, and you're listening to the show, and you're getting ready for Medicare and retirement, or maybe you're 65, and you're still working now. So, you know, you definitely don't want to start out for part B, especially if you're going to pay a big Irma, but you might have a year or two where we can do some things before you do part B, to really plan for this in your retirement to make this Irma penalty less. Yeah, and something that they just changed.

I saw it on the website actually today. Because if you go on Medicare, and you're 65, like me, and you're still working, you know, they hit you every quarter for your Medicare, which is over $400. And, but great news, from my perspective, anyway, because that's just tough to write out of that big a check or, you know, send that kind of money out quarterly, they just changed it Hans, to where now you can, you can elect for them to take it out of your checking account monthly. And so I imagine that would be the same if you're on Irma that, you know, rather than having to pay quarterly over $1,000, you know, you can, when you go on the Medicare.gov website, you can actually now make it so they can take it out monthly.

So you don't have to hit the whole thing in a quarter. But the point that I'm trying to make is I had no idea that, oh, my goodness, when I turned 65, I thought, well, I'm done with health insurance, I gotta be on Medicare, it's free. Not. Well, it's not. And so the $148.50 is what most people pay. And that's what you pay.

If you multiply that times three, it's almost 450 bucks. Right. That's what you've been paying quarterly.

And now that you can do it monthly on your checking account, at least you don't have to look at it every month. Yeah. But so most people are paying that. And so what Irma is, is a surcharge on top of that. Right.

And your Part D. Now, you probably already pay your Part D on a bank draft. Is that right? Yes.

Yes. I don't have to worry about that one. And now I don't have to worry about the other. But the planning part is really where we can do some serious fishing. And to me, this is fun stuff. Like, wow, look what God gave us resources like Hans, to be able to think through this process of my income in order to not have to pay unnecessary taxes.

Well, yeah. And so the big way is, is that to lower your adjusted growth income on your tax return, you say, Well, how do I do that? Well, prospectively, it's real simple is we, we need to have money in a pot that we can draw from that doesn't show up on our tax return.

Okay, and you say, Well, how do you do that? You do that with Roth IRA conversions. So you get money built up in a Roth side that you can draw from for income to live on in retirement. And it doesn't show up on your tax return. Um, you can do it with life insurance cash values where you can accumulate money in a life insurance policy, it's a little late to start buying one of these at 65.

Because you really got to get the money in there first. And it's life insurance is a long term proposition. But if somebody's smart enough to start these things, you know, when they're 60, or 58, or they can do it at 65. Planning for the wave future is your stuff and money in a life insurance policy that's going to be available to you to withdraw on later, if you need it, and you can do that tax free. So, and if you have built up savings, that you've already paid tax on, which many people do, they've just been saving, it's not in an IRA, you can withdraw from your savings account, or your investment account or brokerage account. You can draw on that and not have to pay any taxes.

So you can sell from property, and then you don't necessarily immediately invest that you put it into something you can draw on it. So there's a lot of ways to create income after 65. And also there's already your income that doesn't show up on your tax return. So you're living on the same amount of money, but you're just when you look to the IRS, like you're somebody that makes $50,000 a year. Right, but even those people who have a significant income say that the man who's making $88,000, right?

If I'm getting this right, we'll see if you're teaching me stuff here. Okay, that if I, you know, my income was over 88,000. Let's say it was 93,000 or something like that. Well, and I'm still making an income, I could begin investing that money in a Roth IRA, right? Because I can take $6,000 of my income away by putting that money in IRA this year, right? And that would reduce my income by $6,000.

Right? Well, it would, unless you put it in a Roth. If you put it in a Roth, your income is still 93,000.

But if you put it in a traditional, then your income goes down by 6,000. So there's some ways for people that are still working to reduce that number. See, this is why I need you because I miss. Yeah. Well, I'm with you.

I'm right here. So you know, and we just frequently people think of all kinds of ideas. And it's painful to me, I got to shoot them down on some of the things where they, you know, when we're doing the planning process, but it's okay. I mean, as you just brainstorming, is there's a lot of things that we can do as you know, as they call it in the all the heady people that have MBAs, there's levers that we can pull in the management of your money and the projection and the distribution of your income if you have some money to begin with, and people in these higher income levels do. And so we can just do some overall planning to make your tax return look more favorable, because Irma is not the only thing we got to worry about here. We also, if you're in this Irma category, you're paying big time income taxes on your social security check to, you know, it's the Irma surtax, and then the taxes on the Social Security that a lot of people those to add up to enough that they really want to do some income planning and income management. And we don't really want to get into the details of that so much on the show.

It's really just to let people know that there are ways to control your income if you have resources and money in a retirement account. Right. And then, you know, as I think about it, it's the beauty of having somebody that you can trust.

But then you got to trust him with all the information, right? Because this is a huge puzzle that you're putting together in this plan. Because there's so many moving parts. Oh, yeah.

Yeah. And it because if we just make Irma the priority, and I see some planners doing this is that I'm tempted people come in, they're furious about this. So then all of a sudden, we start making all kinds of moves to avoid this tax or reduce this tax.

It's a little bit like the tail wag and the dog. I mean, this is not so huge that you want to base all your financial planning on it, you, you more want to take this into consideration. And one consideration is just paying it. The other consideration is, you know, do we want to do some things and then whatever we do, planning wise, that has negative aspects like paying taxes right now and money that we could pay later. So there's really, you go through all the choices. A lot of times, there's never that perfect choice. It's just, it's a matter of balancing one thing against another.

Right. And the idea that I think Peter shares here, or Jesus shared with Peter, is probably better said is, you know, let's not offend them. God's going to meet this need, he wouldn't, right? He wouldn't have given us the opportunity if he wasn't going to meet the need. And it's an opportunity for us to do what we can do and fish with Jesus, right? Dr. Gerry Breshears Mm hmm.

That's exactly right. So we're, we're coming up on the end, I just want to talk to people a little bit about the YouTube videos that are up there. I mean, we're getting all people all over the country, one of those videos has hit 100,000 views. And you can find us, there's about 100 videos up there of me in front of a whiteboard. You can find it on YouTube at Cardinal Advisors, and that's ORS. You can also put my name in Hans Shiel into YouTube, and they pop right up.

And we've got some of those videos on this very topic, Irma, and several other topics as well. Darrell Bock Yeah, it's absolutely beautiful, not to mention the whole website, which is again, Cardinal Guide. It's Cardinal Advisors on YouTube, it's CardinalGuide, is their website.com, CardinalGuide.com, where you can get Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement.

And again, this chapter on Medicare is absolutely free, one of the seven worry tabs. But I guess you can just get the book by emailing Hans, which, by the way, he would love to get an email from you anyway. You've got a question that you would like to hear covered on Finishing Well, by all means, email Hans, and Hans, as always, great show.

I'd love being with you today. Hans Shiel Yeah, same here. God bless you, and all of the folks listening. Darrell Bock And good fishing. Hans Shiel Thank you. This is the Truth Network.