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Do Capital Gains Affect IRMAA?

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IRMAA, which is short for the Income Related Monthly Adjustment Amount of Medicare is a surcharge on Part B and D premiums for those who earn too much income in a year and the question retirees often ask is do Capital Gains Affect IRMAA?

Unfortunately, the answer is yes, as they, amongst many other forms of income do, affect IRMAA.

In fact, the definition of income, when it comes to IRMAA is extremely broad.

The Centers for Medicare/Medicaid Services (CMS) defines income as: “adjusted gross income plus any tax-exempt interest”.

Some examples of what counts as income towards IRMAA are:

Wages, Social Security benefits, Pension/Rental income, Interest, Dividends, distributions from any tax-deferred investment like a Traditional 401(k) or IRA and, again, Capital Gains.

One consideration:

When it comes to Capital Gains affecting IRMAA there is one saving grace: the sale of a primary residency.

For individuals the first $250,000 capital gain and for couples the first $500,000 capital gain does not count towards IRMAA. All gains above those amounts do, though.

A more in depth look at what counts towards IRMAA:

For those on Medicare in 2021, CMS may look at your past 3 years’ tax returns. If CMS does look at your tax return from 2020 it will look specifically at lines 2b and 11 of the IRS form 1040.

Keep in mind that every 1 to 3 years CMS will make a determination of IRMAA. Though you may not reach IRMAA today, if you distribute too much income you may reach IRMAA eventually.

To manage your largest expense in retirement an avoid IRMAA, we highly recommend that you speak with a financial professional today who understands IRMAA.

For more information on IRMAA please see our article “What is Medicare’s IRMAA“.

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