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PERSONAL FINANCIAL PLANNING

Medicare premiums, MAGI is defined office in lieu of completing and sub- clients. In addition, how can one an-
as the sum of: mitting Form SSA-44. However, even ticipate what the inflation adjustments
■ The beneficiary’s AGI, plus if the interview is selected, carefully will be?
■ Certain income exempt from tax reading and understanding the Form That being the case, the basic plan-
under the IRC including: SSA-44 instructions would increase ning techniques of deferring income
● Tax-exempt interest income the likelihood of a successful outcome and accelerating above-the-line deduc-
received or accrued; e.g., interest from the interview process. tions come into play. If the individual
from state and local bonds (Sec. As set forth in Section 2507 of the is close to the next income bracket/
103); Social Security Handbook, the list of the level on the IRMAA, they might be
● Interest from U.S. savings bonds eight life-changing events includes: able to forecast the premiums and
used to pay higher education 1. Marriage; plan accordingly.
tuition and fees (Sec. 135); 2. Divorce or annulment; Sale of investments or other assets
● Earned income of U.S. citizens 3. Death of your spouse; (e.g., personal residence with gain
living abroad that was excluded 4. Work stoppage; in excess of the Sec. 121 limits) may
from gross income (Sec. 911); and 5. Work reduction; require careful consideration to prevent
■ Income from sources within Guam, 6. Loss of income-producing the income from causing an unexpect-
American Samoa, the Northern property; ed Part B premium increase. Structur-
Mariana Islands, or Puerto Rico 7. Loss or reduction of pension in- ing sales using the installment method
not otherwise included in AGI come; and or selling assets over several tax years
(Secs. 931 and 933) (see Congres- 8. Receipt of employer settlement may be effective. Gifting assets versus
sional Research Service Report payment. selling them might be another option
The Use of Modified Adjusted Gross to consider.
Income (MAGI) in Federal Health Penalties Planning with retirement ac-
Programs). Unfortunately, the SSA can impose a counts is another possibility. Those
significant lifetime penalty if a person who are still working may be able
Appeals could have had Part B coverage but to make additional contributions. If
If a Medicare beneficiary receives a failed to enroll upon eligibility. (See cash-or-deferred arrangements have
determination regarding Medicare Medicare’s “Avoid Late Enrollment been maximized, other contributions
Part B premiums that they do not Penalties” page.) The penalty adds to individual retirement accounts
agree with, the SSA has an appeal 10% to the current Part B premium (IRAs), including spousal IRAs, can
process. This can be initiated by com- for each year that the Medicare re- be explored.
pleting Form SSA-561-U2, Request cipient failed to enroll in Medicare Taxable retirement withdraw-
for Reconsideration. For more informa- Part B. Additional late enrollment als should also be managed with the
tion on appealing Medicare Part B penalties could also apply for Part A IRMAA in mind. Once the individual
premium determinations, see SSA, and/or Part D coverage. Note that reaches the age at which one is re-
Medicare Annual Verification No- Part A is premium-free for those who quired to start making required mini-
tices: Frequently Asked Questions. paid Medicare taxes for at least 10 mum distributions (RMDs), planning
years and that enrollment in Part A is can be more complex. It is important
Life-changing events automatic for anyone collecting Social to note that RMDs from employer-
In certain situations, a different ap- Security benefits. sponsored plans are not required as
peal process is used. Should Medicare long as the person is still working. This
beneficiaries experience one of the Planning requirement is applied only at Dec.
life-changing events discussed below Planning around the IRMAA can 31, so there is an incentive to continue
and their income goes down, they can be difficult because of the delay in working and to plan a final work date
request a reduction in the monthly calculation between MAGI and when accordingly. For example, terminat-
IRMAA by filing Form SSA-44, the current Part B premium amounts ing employment on Jan. 1 will “count”
Medicare Income-Related Monthly are published. As discussed previ- as another year for RMD deferral
Adjustment Amount — Life-Changing ously, premiums are based on MAGI purposes. If there are other retirement
Event. As an alternative, the form from two years prior to the current accounts, they might be rolled into
instructions provide that an interview premium year. Accordingly, premium employer-sponsored accounts to allow
can be scheduled with the local SSA increases are often unexpected by this flexibility.

48 March 2023 The Tax Adviser