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Can I avoid IRMA in 2025 with this strategy?

Forum|Forum|2 years ago
October 26, 2023
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My father passed away in 2023, resulting in 2023 being the last year of MFJ status for my mom.

In 2024, my mom will file as single. This plus expected rate increases in 2026, means that 2023 is an opportunity to get favorable MFJ tax brackets at pre-2026 tax rates. She is considering cashing out dad's post-RMD IRA balance in 2023, paying MFJ rates, and converting funds into a Roth. This will create a MAGI spike in 2023, for which she would file form SSA-44 citing death of spouse as reason for lower income in years post 2023, thus avoiding spike in her Medicare premiums.

Since the 2023 income spike would be intentional on our part, is it likely SSA will consider death of spouse to be the legitimate reason for lower income in subsequent years? I would hate to see her 2025 Medicare premiums skyrocket over this if it is not going to be acceptable to the SSA.

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Best answer by NCPERSON1

@vista25

just because you submit the form doesn't mean SSA will approve the reduction.

But on the otherhand, what is the risk of submitting it?

Your issue is you are manipulating your income higher in 2023 to take advantage of the Joint Filing Tables before you mom is forced to use the Single tables.

But you may be thinking about this incorrectly. Think of IRMAA as simply more income tax (I do).

GIven your mom will be losing the advantage of filing Joint, and let's say the marginal tax rate in 2023 was 2% higher (which is a proxy for IRMAA) than is really is. Would she be willing to execute your 2023 strategy if the resulting income tax was 2% higher? (and remember if you don't execute this 2023 strategy, those IRA dollars will have to be distributed in later years using the Single tables - you have an option that expires on December 31)

if yes, that is the same thing as executing the strategy and paying IRMAA in 2025.

if no, then don't execute the strategy. The risk is SSA will deny the application because the income was manipuluated higher - it wasn't the case of a wage earner who unexpectedly passed.

One more time: think of IRMAA as additional income tax. It will open your eyes to a broader spectrum of tax strategies. It may help you plan mom's income for 2024, 2025, and years beyond.

fanfare

Employee

If there is a spike in income (Roth conversion) the medicare premium may go up but then it will go back down the next year. Unlike a Traditional IRA, once your IRA is a Roth IRA, the distributions will not make your medicare premium go up.

@vista25

V

vista25Author

Yes, but can I file SSA-44 to prevent completely the spike in Medicare premiums? Death of Spouse is one way of claiming that current income is now lower than the year used to calculate IRMA. So, is it possible to avoid even a single year of IRMA if one has a qualifying life event the same year as the income spike?

N

NCPERSON1Answer

@vista25

just because you submit the form doesn't mean SSA will approve the reduction.

But on the otherhand, what is the risk of submitting it?

Your issue is you are manipulating your income higher in 2023 to take advantage of the Joint Filing Tables before you mom is forced to use the Single tables.

But you may be thinking about this incorrectly. Think of IRMAA as simply more income tax (I do).

GIven your mom will be losing the advantage of filing Joint, and let's say the marginal tax rate in 2023 was 2% higher (which is a proxy for IRMAA) than is really is. Would she be willing to execute your 2023 strategy if the resulting income tax was 2% higher? (and remember if you don't execute this 2023 strategy, those IRA dollars will have to be distributed in later years using the Single tables - you have an option that expires on December 31)

if yes, that is the same thing as executing the strategy and paying IRMAA in 2025.

if no, then don't execute the strategy. The risk is SSA will deny the application because the income was manipuluated higher - it wasn't the case of a wage earner who unexpectedly passed.

One more time: think of IRMAA as additional income tax. It will open your eyes to a broader spectrum of tax strategies. It may help you plan mom's income for 2024, 2025, and years beyond.