SS and Medicare Penalty Avoidance

[e209780s]

Well, I hope the have a SS expert out here that can answer a questions. 

As it is now my income is to low to buy the home I want but I could pull enough from my IRA to cover the 20% down payment on a new home. Normally when you show a large income increase SS raises your Medicare Part B accordingly and in this case it would show a very large increase in my income and SS will think it's from working a job and not where it actually came from or what it was for. They also could stop my SS for what they see as making more than I am allowed to under SS. Got any inside information for me so we don’t get caught up in this mess. Is there a form to fill out ahead of time to give SS a heads up on what I am doing and why.

[Tonster521]

@e209780s As you know, your IRA Distribution will be subject to Federal Income Tax (FIT) and possibly State Income Tax (SIT), SIT varies depending on your State residency. If you are concerned about paying IRMAA , your planned IRA Distribution will place you in a marginal tax bracket of 24% or greater (depends on the amount of your distribution). For example, in 2021, the IRMAA  is assessed for Single taxpayers with taxable income greater than $88 K and for Married Filing Jointly (MFJ) taxpayers with taxable income greater than $176 K. I rounded the amounts. FYI, the 24% marginal tax bracket for 2021 Single/ MFJ is $86,376 to $164,925/ $172,751 to $329,850, respectively. So, your FIT on your IRA Distribution is going to be greater than your IRMAA. You may need to discuss your situation with a qualified tax person such as a CPA. Also, you may explore other ways to fund your home purchase such as a 401 K loan, an FHA mortgage, borrow against any cash value life insurance, etc. In other words, non-taxable transactions. Good Luck.  

[ReTiReD51]

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I’m not a “SS expert”. However, I’d like to offer up a link from AARP that I think is a little more straightforward and candid in regards to your question.

Will a higher income affect my monthly Medicare premiums

[john258]

Suggest you contact a local expert on your problem to get the best advice as they should know all the in and outs of this type of problem in your area, and ways to get around some of them.  Contact your local AARP Office if you do not know anyone as they should be able to give you some names. No one in here can do that for you.

[GailL1]

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@e209780s wrote:

As it is now my income is to low to buy the home I want but I could pull enough from my IRA to cover the 20% down payment on a new home.

Normally when you show a large income increase SS raises your Medicare Part B accordingly and in this case it would show a very large increase in my income and SS will think it's from working a job and not where it actually came from or what it was for.

They also could stop my SS for what they see as making more than I am allowed to under SS. 

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Think about buying this home very carefully especially if you have to take the 20% DP from your retirement account.  You know all the figures and you may live a very, very long life and with that long life comes several higher expenses.  

With that said - yes, there are some costly drawbacks in doing it the way you described.

The Medicare Part B Premium IRMAA (Income-Related Monthly Adjusted Amount) only has a very, very few exceptions (Life-Changing Event)  and what you are contemplating here IS NOT one of them.  Here is the NEW form for filing for the Medicare IRMAA (Income-Related Monthly Adjusted Amount) Life-Changing Event - SSA-44.  You can look over it and it is pretty self-explanatory.  

IRMAA amounts aren't just based on earned income - it is pretty much ALL income - earned / unearned.  So the whatever amount that you withdraw from your IRA for the 20% DP on the home - will be counted on your tax return as INCOME and with that comes . . . . .  

• First you will have to pay federal and state income taxes on it at whatever rate is applicable along with the rest of your income
• whether or not there is an early withdrawal penalty - don't know your age/other statuses and the house buying penalty exception is kind of specific.

Investopedia 05/29/2021: Can You Use Your IRA to Buy a House? 

• The IRMAA monthly amount will be added to your Medicare Part B premiums based on your total income for that year.  These will last until you file another tax return for the next year without the huge IRA withdrawal and then the Medicare Part B premium will reset.  It maybe wise to note that there is actually a delay in how these are charged - because SSA has to know the amount of income from your tax return - so IRMAA Part B premiums for this year (2021) are based on 2019 TY returns

Medicare.gov - Cost of Part B 

• If you are already on SS Retirement but you are not Full Retirement Age, there is an earnings limit and if you go over that amount (earned income) your benefit is reduced until you reach FRA.  However, the IRA distribution amount (since it isn't "earned") does NOT count in this regards.  So your benefit would not be reduced 

[fffred]

@e209780s There's a distinction between earned income (as from wages) and "income". Income from investments, savings, pensions, and retirement account withdrawals do not count as "earned income" for the purpose of affecting your SS retirement benefits before your full retirement age. Of course, they may affect the taxability of the the SS retirement benefits.

A quick search turned up these two relevant articles:

https://www.marketwatch.com/story/how-do-ira-distributions-affect-social-security-2014-01-17#:~:text....

https://www.marketwatch.com/story/do-ira-distributions-affect-social-security-2016-06-20

From the second article "Retirement withdrawals do not count toward the Earned Income Limitation. The limitation applies to income from labor such as wages, salary, or self-employment income."

Given more time I would locate the rules on the SSA site, but my wife is calling me to do chores.

Good luck!

ps:  This article addresses how this all may affect your Medicare premium. There is a form you can file with Medicare to indicate that one year's "large" income is not typical and you should be exempted from the extra premium.

see https://wtop.com/news/2020/10/what-to-know-about-withdrawing-money-from-a-traditional-ira/

and https://www.aarp.org/retirement/social-security/questions-answers/income-affect-medicare-premium.htm...

[GailL1]

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@fffred wrote:

There is a form you can file with Medicare to indicate that one year's "large" income is not typical and you should be exempted from the extra premium.

No exemption for this reason - It is a personal choice or under the RMD rule that the amount of an IRA withdrawal/distribution is made.  Here is the newest (and more detailed) form.

SSA-44

Here is the SSA: POMS (Program Operations Manual System) HI 01120.005 Life Changing Events 2013 - present :

There are situations where a beneficiary may request the use of a more recent tax year for a new initial determination because a one-time event caused an increase in his or her income for the tax year we are using to impose IRMAA. Consider this type of event as a non-qualifying event. Some examples of one-time income that cause an increase and are non-qualifying events (NQEs) include:

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  Capital gains from the sale of property;

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  Lottery winnings;

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  Casino winnings;

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  Conversion of an IRA; or

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  Cashing bonds.

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  Course there is always the endless ways of APPEAL but then they just collect in the end unless you are persistent and are good at filing the appeal.