IRMAA For 2022

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This is the Truth Network. Welcome to Finishing Wealth, brought to you by CardinalGuide.com, with certified financial planner, Hans Schile, best-selling author and financial planner, helping families finish well for over 40 years. On Finishing Wealth, we'll examine both biblical and practical knowledge to assist families in Finishing Wealth, including discussions on managing social security, Medicare, IRAs, long-term care, life insurance, investments, and taxes. Now let's get started with Finishing Wealth. So, Finishing Wealth is a general discussion and education of the issues facing retirees.

CardinalGuide.com, Cardinal Advisors, and Hans Schile CFP sell insurance. This show does not offer investment products or investment advice. Oh, welcome to Finishing Wealth, a certified financial planner, Hans Schile, and today's show is Irma for 2022. And, you know, I guess, Hans, before we even get into the biblical reference of it, we need to give some people a little bit of understanding of who is Irma, or what is Irma? Well, Irma is run by Aunt Irma, and Aunt Irma is married to Uncle Sam, okay? And what Irma stands for is income-related, monthly adjustment amount.

I'm sure that clears up a lot for everybody right there. Let's just say it's the Medicare tax for high-income people, or higher-income people. So if you make some pretty significant money, you're going to have to pay a whole lot extra for your Medicare to the government to receive it. Yeah, the Aunt Irma part was just a joke.

But it's good, you know, because she is married to Uncle Sam. However, there are some definite differences between Aunt Irma and Uncle Sam, and that kind of leads to our biblical precedent, or what we will talk about today, in that one of the ways that they calculate the Irma, or this tax for your Medicare, they use what they call the cliff approach, which is kind of an interesting thing. It's like, if your income is $91,000 or less, you don't have to worry about Aunt Irma at all.

But if you make $91,001, you went over the cliff, and you now are going to have to deal with Irma to some extent as it goes on, and we'll go into a lot of that in the show. But interestingly, as I was reading that and thinking about it, it is in God's economy that he likes the cliff approach as well. Like, if you have one sin, if there's just one, then you're not perfect, and off the cliff you go. And I love, I love, love, love the very first verse of the 119th Psalm. And if we were to read it in Hebrew, one way that you could translate that would be, blessed are the perfect who are in the way that walk in the law of the Lord. Well, I don't know how many perfect people you ever met, but if you aren't perfect, you don't qualify under the blessed category as far as the 119th Psalm verse 1. But God knew, as did the Psalmist, that Jesus would die to take us over the cliff. There is one perfect person.

It is Jesus. And so the good news is that if we can get up underneath this perfect, the perfection, then we can begin to see, like even in Romans 12.2, where it talks about that we can begin to prove his perfect will, right? And in doing that, we have to have a renewing of our mind that comes with being within Christ. And so we're hoping in today's show, we're going to renew your mind a little bit when it comes to Irma. We don't want anybody sinning and getting aggravated over it, do we, Hans?

No. And they do get aggravated. Some very good Christian people get real mad about this. And I let them have that. And then this is really a tax planning issue and an income planning issue. And then the first thing we got to do when we're doing this for people is we got to figure out, you know, what we have control over and what we don't have control over. And then get them, you know, one dollar under the threshold, or the cliff, if that's possible. So, and the thing that is also upsetting about this to people is nobody talks about it, I guess, other than me.

And I got several of my YouTubes on it. And what we're talking about today is it's got new rates for 2022. And so, and the people that this applies to, they're getting letters this month, or they got them last month, that said, okay, because you made such and such and such an amount back in 2020 on your tax return, you are now going to have to pay this amount for Medicare Part B and this amount for Medicare Part D. So, you know, we're going to which is more than you thought you were going to pay. Okay. And so, that's what it is.

It's a surcharge or a tax based upon your income two years ago. And I'm sure that's about as clear as mud. Yeah. And it's a point for concern as you do anything financial planning wise, right, with money that might affect somebody's income in 2022, when it comes to some of the things that we've discussed in the past, Roth IRA conversions and those kinds of things, what we do in 2022 is going to affect our Irma cliff in the year 2024, right? It is. And so, we're this, you know, because the starting point for a single person to pay anything on Irma is $91,000 of income in 2020.

Okay. If you're in 2022, you're on Medicare, and if your income that you filed on your tax return was more than $91,000 or $91,000 or more, you're going to have to pay some Irma. Now, for a married couple filing jointly, that number is double that. It's $182,000. Well, I can feel people turning the channel now.

They're saying, well, that's not me. You know, we don't make that much. So, I guess we don't have to worry about this. Well, that's partly true, but don't change the channel yet, because what we do for a lot of people in their 60s that come into us, even before Medicare, is we start doing Roth IRA planning and Roth conversion planning, which is really tax planning. So, we start taking some of their pre-tax IRA money, and we start moving it over in smaller amounts year by year to create a tax-free account.

Okay. That's another show, another day. But when we're doing this, we always have an eye on Irma, because when they get on Medicare, all of a sudden, all this wonderful tax planning we did two or three years ago is going to come back and bite them, because now they're going to pay an Irma surcharge for their Medicare. So, that's, you know, we want all our clients to be aware of this. And we look at it, if people like cash in their retirement account, we have some people that when it comes time for retirement, they just take their retirement account and they just say they want to pay the tax, they just cash it in. Or maybe they're getting bought out of a pension plan, where instead of taking the monthly pension for the rest of their life, they've gone to their employer and their employer says, no, we'll buy you out. And then they take the check for $150,000 or $250,000 or $80,000 or something. And then they know they got to pay taxes on it, but it also piles on top of their other income. So, there's all kinds of people who we wouldn't categorize as rich end up with an Irma problem. So, we all need to learn about this. But, you know, once, because I guess I've been talking about it for a couple years now, because I clearly had no idea what Irma was two years ago. But after a while, the fog kind of clears and you go, okay, I think I understand. And I also understand that clearly it's part of the way the government is ensuring that we're going to have Medicare for people that really need it on into the future, right?

Well, yeah, that's the deeper issue. I mean, you think about it, I'm paying right now at 63 years old, for me, about 1200 bucks a month for my health insurance through my business. And my wife's paying about the same. And when I go on Medicare a year and a half from now, that 1200 bucks a month is going to be gone. And I'm now going to have Medicare. My income, or our combined income, is less than 182. I make sure of that.

And I shelter some of my money within the business. But in any case, I'm lower than that. So, I won't be facing Irma. And so, I'm only going to pay for my Part B, $170.10 a month or whatever it is two years from now, or a year from now.

I guess it's getting closer than I think. And I'm not going to pay any extra for my Part D. But if I was, and if I did, it's really not all that bad. I mean, it's an extra $50 or $100. But it could be for people that show incomes of $300, $400,000. I mean, you're talking about another $500 a month. Still less than what I'm paying for my insurance. So, the guy I just spoke to this morning, who is becoming a client, and he's buying Medicare insurance from us.

We got on the topic of Irma. And his income is pretty substantial. And he's going to be paying for each of them, husband and wife, another $300 a month.

So, that's noteworthy. But he's paying about like I'm paying for his health insurance right now. So, this is just, so instead of paying the health insurance company, he's paying the government to have Medicare. And it's just like you said, this is making people that have the money to do it pay some extra for their Medicare. And it's going to shore up the system.

Right. And so, you know, again, as we talked about it, we don't want anybody to get frustrated or aggravated. We want to just think through the planning process and see what it is. And of course, we've got a whole lot more coming up along those lines. But, you know, we want to remind everyone that this show is brought to you by Cardinal Guide, cardinalguide.com, where you can email Hans, you can get his book, The Complete Cardinal Guide, the planning for and living in retirement, which, you know, in the Medicare section there, I can tell you, there's all about Irma in there, as well as his YouTube channel, which is Cardinal Advisors. So, if you go to Cardinal Advisors on YouTube, you know, there will be an upcoming video on Irma for 2022. And so, you know, when we come back, we've got a whole lot more to help clarify this and hopefully make it easy for you to say, okay, I understand this. It's a part of the planning.

Again, it isn't anything that we would recommend you try at home, but it's just good to have a basis of understanding. Don't you think, Hans? Yeah, absolutely.

So, we'll be right back with a lot more of Irma for 2022. 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. Welcome back to Finishing Well with certified financial planner, Hans Scheil, and today's show is Irma for 2022. And, you know, Hans, there's a really handy chart that will be available, of course, in the YouTube video on Cardinal Advisors, but we can kind of go through that to bring some clarity.

This chart is up on our website now, cardinalguide.com. If you just go to the Medicare page and go all the way down to the bottom of resources, this thing you and Robbie, you and I are looking at right now is there. And it comes from Ed Slott, who I follow for IRAs and other things.

And so just to give you an example, so a married couple, I'll just use us as an example. Let's assume that I'm on Medicare now. And because I have an adjusted or modified adjusted gross income of less than 182,000, Irma doesn't apply to me. But let's just say that I did, like the guy we were just talking to, he's between 284,000 and 340,000 of income. And so instead of paying $170.10 a month for his Part B, he's going to pay $442.30 a month for an extra $272 a month.

But that's times two, because they're a married couple, both turning 65. So that's some substantial money. But his income is also some substantial money. And basically, he can afford it. Now, one of the things I was asking him is, is he retiring? Is his income going to be going down substantially? And he says, well, eventually, but he's doing a lot of things. And so not in the near horizon, because if he was retiring soon, we would do an Irma appeal for them.

First, you got to get the letter that says that they got you for Irma, and Irma needs to find you, and then send you a letter and send you a bill. And then we would file an appeal. And in the appeal, we're just going to say, well, yeah, sure, he made this much a couple years ago. But he's going to make a, he made a pretty good income last year. But his income this year is going to be much smaller, because he's retired.

That's a life event. So there's ways to get out of this as if you're going to have a significant income reduction. Right. And also, as I was looking at the chart, it's 442 for your Medicare Part B. And then also, they're going to get him $51.70 for his Part D, which is his drug plan, right?

Yeah. And that's going to be on top of the drug plan premium. You know, the drug plan premiums are going to be $10, $20, $30 a month, $7.

But then for this dude and his wife, they're going to get an extra $51.70 on top of that. People get a little hot about this. Here comes the sin. You know, they get angry. And so my job is not to really express an opinion about this, because what's coming out of the government, there's nothing we can do about it.

And you tried to look for some good in it. And I do as well that this is financial shoring up for the Medicare program, because this money goes right back into the Medicare program. But for him, that doesn't do anything, just make somebody less mad. And the thing I want to make the point is, is that if he goes $1 into the $284,000 bracket, that's what you were talking about in the beginning, is the cliff approach. If he makes $284,001, he is going to pay that extra $272.20 plus the $51.70, and he's going to pay that twice on he and his wife. Or another way to look at it is if he was at $283,000, he would be in the lower bracket, and then his surcharge would be an additional $170.10 and an additional $32.10. So that $1 is costing him $100.

It absolutely is. So when we're doing tax planning, income planning around IRA conversions to Ross, and we're planning that out in the future, we're looking at these thresholds just as well as we're looking at the tax brackets. But we don't let the Irma tail wave the tax dog. So you want me to qualify that a little bit?

I like that. When you use Irma to do all your tax planning, which some of these people get so upset about it that they want to bring this thing down to zero and we want to do all this tax planning, then they make foolish mistakes and pay a lot of taxes that they don't really need to pay. So what I mean by that is Irma is just for one year. So this 2022 is based upon your 2020 income, which you can't do anything about right now, anyhow, other than file an appeal. And so what you can do something about is 2022 income, where we can make withdrawals from an IRA, conversions, all that kind of stuff. But we don't want to get too taken up with that because, or Irma itself, because this is just for one year. And it's really to a person in this income level that it's not a huge amount.

It's just not. So we want to learn about it. We want to do our best to minimize it.

We don't want somebody paying that to just retire, that their income is going way down, then it is a lot amount. So we just got to use in all of these things, we've got several competing objectives. But when we're doing income planning for people or writing a financial plan, when they get to be 65 in our chart, if that's a few years from now, or one of them is there, or the other one's getting there, we're going to use these thresholds and just decide how much Irma we can stand or not stand and project this thing into the future. Yeah.

And I, and I love a lot of the stuff that's on this chart that, um, that you got from that slot that are things that, you know, if you're younger, things like health savings accountants and QCDs, there's all sorts of helpful stuff, right? Well, yeah. I mean, if people are part of a health savings account and you've built up some money in there, that's a wonderful thing.

I mean, now you got it there. Now you can't continue to participate in an HSA once you get on Medicare. That's a no-no. Once you sign up for Medicare, no more HSA contributions, but you keep what you got and you can spend what you got and you can actually use the money in your HSA to pay your Irma and Part B and Part D charges, along with paying for your Medicare supplement, along with paying for your costs. Now, you start throwing it all in there, the account's going to go down pretty quick, unless you got a substantial balance, but why not? I mean, why not get those tax deferred dollars out of the HSA and get reimbursed for things without paying any taxes? That's a home run.

I'm all for emptying that account. Another thing that's on here is the QCD strategy. So, if you're over 70 and you've been paying Irma and you continue to pay Irma, and some of that or a lot of it might be driven by your minimum distributions, where you're having to take money out of your IRA or 401k because you're 72 and older, and you could use a QCD or, in other words, give your minimum distribution away or part of it to a charity like the church or missions or whatever charity that you would decide, that's going to lower your taxable income. To point out that the QCD stands for qualified charitable distribution. So, if you're listening to this for the first time, and I know we probably lost you a long time ago, but it's nice to know that, wow, through the QCD, through the qualified charitable deduction, because you're using that for your distribution, but because you're using that money where you would normally be giving the money, then that means you don't have to take the income in order to use it, right?

I said that probably. Listen, I have some clients that in January, every year, they give $100,000 to several charities, most of them including the church, perhaps some missions, and then some other charities, some local charities. You can do as many as you want, and they give it directly out of their IRA through this qualified charitable distribution, and it does not show up on their tax return, thereby lowering their taxable income, and it's going to be a reduced IRMA form. And the time to do those QCDs, by the way, are qualified charitable distributions. What we're talking about those is in January, because if they're going to count toward your required minimum distribution, they need to be the first distribution of the year, okay? Or the first several distributions, if you're going to do several QCDs.

So, the time to do those is in January. I'll be glad to help anybody with those, especially if the money's going to the church. Yeah, it's a great, great strategy, and it's a win-win for everybody. Oh, it is. And I think that more churches out of, get active with this, their stewardship ministry, where they, with their older contingent, you know, and the older folks, a lot of them are just sitting on IRA money, just taking the minimum distribution, paying taxes on it, and then they're ultimately going to leave that money to the next generation, and they could be preserving their other money, besides the IRA, doing all their donations through the QCDs, and then when the charities win, the people win on their tax returns, and then the beneficiaries win because they get unencumbered money, or they get money that they don't have to pay tax on in the will. So, it's a, this is a, I'll be glad to give that talk to any church that wants me to come out. And ultimately, the government wins too, right?

Because... Oh yeah, yeah. It's still resources that are used to help, that's going to decrease the need for, you know, other charitable programs that they're backing. Yeah, a lot of people don't even know about QCDs. So, and they're, they're a good Irma reduction strategy. Getting income later in retirement through a Roth withdrawal is another way to reduce Irma charges, because they don't count as income. So, that's part of my plan, is to, when I retire, to start distributing money to myself out of my Roth to go with my Social Security, and then I don't intend to face these things in, you know, in my retirement in my 70s. Right, and so to go back to, you know, we've got regular, you know, IRAs, and then we have these that you're paying the taxes before they go into the Roth, so when you take the distributions afterwards, which by the way, there's no minimum distribution on the IRA if it's a Roth IRA, right? Right.

And so, when you're taking distributions out of a Roth IRA, it doesn't affect your income at all, and so there is no possibility for Irma upcharges from that. No, there's not. And so again, it's really cool stuff. We do recommend that, of course, you call Cardinal Guide. Call Hans, he would love to help you with this kind of stuff. Just go to cardinalguide.com, and there you're going to find all the contact information. The actual chart that we've been reading for today, as Hans pointed out, is on the Medicare page, and you can just scroll down to the bottom, and you can see all that that we've described today. Of course, there will be an upcoming video that will be put out, Cardinal Advisors, on the YouTube page there for Cardinal Guide, and, you know, as always, fun show, Hans, great to be with you. That was wonderful, thank you.

Thank you. Finishing well is a general discussion and education of the issues facing retirees. CardinalGuide.com, Cardinal Advisors, and Hans Scheil CFP sell insurance.

This show does not offer investment products or investment advice. We hope you enjoyed Finishing Well, brought to you by cardinalguide.com. Visit cardinalguide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes, as well as Hans' best selling book, The Complete Cardinal Guide to Planning for and Living in Retirement, and the workbook. Once again, for dozens of free resources, past shows, or to get Hans' book, go to cardinalguide.com. If you have a question, comment, or suggestion for future shows, click on the Finishing Well radio show on the website and send us a word. Once again, that's cardinalguide.com, cardinalguide.com. This is the Truth Network.