Medicare Premiums and IRA Withdrawals

[denisea896128]

We took some funds out of our IRA this year for a down payment on a condo. I know it will affect our Medicare premiums two years from now (in 2025), as it significantly increased our "income" in 2023.  My question, however, is how long will Medicare require us to pay the double premium based on this one-time boost in our 2023 income?  In 2024 we fully anticipate the income to return to previous levels. 

[Tonster521]

@denise896128 after posting my reply, I received an error message. So, I do not know if you can see my reply. I am able to see it. If you can see it, please disregard this posting/info. I guess this is what happens when using old software. Maybe I should buy new software.

[Tonster521]

@denisea896128 Please see my reply to Gail. Because the amount of IRMAA is significant (double the standard Medicare contribution), I suggest to submit/file Form SSA-44 to advise a decrease in income, if your income does decrease in 2024. You will have a paper trail and more importantly the date(s) you submitted/filed. Waiting for the IRS may be a time delay. You may also notify the SSA of your increase of income for 2023.

Different topic: Federal, State, and Local income taxes, if any. It appears your Federal Tax rate will be 24% for taxable income exceeding $190,750. So, if you exceeded the $190 K threshold by $60 K, your additional Federal tax will be $14,400. Plus you have an opportunity cost of not having that $60 K invested. At a 5% return, that is $3,000 per year. IRA withdrawals at 24% can be very expensive. The federal tax rate is 22% for taxable income from $89,450 to $190,750. Although 2% less, you will still have the opportunity cost of not having IRA monies invested. IRA withdrawals can be expensive money from an income tax perspective as well as IRMAA. Have you reviewed borrowing money (mortgage) for the condo purchase? With a mortgage, you are paying interest on a declining amount with each principal payment. On the other hand, you are earning compound interest on principal and interest as long as the money stays invested. This is something to think about. 

[GailL1]

SSA.gov - Medicare Premiums If You Have A Higher Income

This link explains it - how it is determined, how much and when - 

If your incomes drops down to a level not covered by the IRMAA premium surcharge in 2024 (filing TY) , then your Part B premium will adjust down in 2026.

Just make sure that you file a timely tax return.

You should not have to do anything except file the tax return.

Remember, it also affects your Medicare Part D premium also.

Not for you now but if others are planning to do this sort of thing and it is planned - converting some of the IRA funds to a ROTH several years, two or more, before going on Medicare and paying the income taxes on the amount converted would save the day.

I converted a good part of my IRA / SEP retirement funds several years before reaching 65.  I did it incrementally so that I wasn’t hit with any giant tax bill.  

Now any retirement funds that I receive from my ROTH account are NOT counted on my tax return - ROTH distributions are not counted in the AGI - and thus I don’t usually have to pay any IRMAA Medicare surcharges.

[Tonster521]

@GailL1 I wish I had your level of confidence with the IRS. I guess in the theoretical world filing timely tax returns should result in automatic and timely adjustments with SSA and Medicate contributions (Parts B and D). However, it has been my experience that very little is automatic with the IRS. One has to wait until someone at the IRS gets to it. My suggestion to Denise is to submit/file Form SSA-44 immediately after their income decreases which may be January 2024. Of course, this is provided that Denise does not receive another significant IRA withdrawal. The SSA should respond quicker than the system created for linking the IRS and SSA.