Dear Rusty: If I have reached full retirement age (FRA) and wish to sell a $500,000 asset, will it affect my wife’s Social Security if we file jointly? I have heard that it will affect my Medicare (the amount withheld each month) but she still has three more years before she can receive benefits. Is it better to liquidate assets before she reaches FRA if we will be penalized? Would her Medicare be affected as well as mine? Signed: Planning Ahead
Dear Planning: Only earnings from working can affect Social Security (SS) benefits, so passive income from selling a large asset won’t affect your wife’s future Social Security benefits (nor yours). However, if your “combined income” from all sources (which is your Adjusted Gross Income plus any other non-taxable income you may have, plus 50% of your SS benefits) exceeds certain levels, your Medicare premium will be subject to the Income Related Medicare Adjustment Amount (IRMAA) rule, which will add a supplemental amount to your base Medicare Part B premium. If your combined income (including that sold asset) for the 2020 tax year is between $326,000 and $750,000 then your Medicare premium for 2022 will be at least $462.70 (I say “at least” because the Medicare Part B premium can increase each year).
The IRMAA premium increases on a sliding scale starting at $174,001 of combined income for a married couple filing jointly ($87,001 for an individual). If you liquidate that large asset this year, it will be reported on your 2020 income tax return which will be filed in 2021. That will mean that your Medicare premium for 2022 will be affected by IRMAA, and so will your wife’s if she has enrolled in Medicare at age 65 in 2021 (which she need not do if she has other “creditable” healthcare coverage through an employer).
So, should you liquidate that large asset before your wife reaches her SS full retirement age? It doesn’t matter for Social Security purposes because that passive income will not affect your wife’s SS benefit. But, if your wife enrolls in Medicare at age 65, her Medicare Part B premium, as well as yours, will be subject to IRMAA and, thus be considerably higher than the standard premium of $144.60 (the amount for 2020). Note that if your combined income for the following year is low enough to reduce your IRMAA premium, the Medicare premium will revert back to the lower level. Medicare typically uses income data from two years ago to determine current year premium, so they wouldn’t normally change your IRMAA premium back until they receive your income data for the previous year from the IRS. But, it is possible for you to contact Social Security earlier and provide them with proof that your income is now lower than reported in a previous year (causing the higher IRMAA premium) and they will adjust your Medicare premium sooner than they otherwise might.
Russell Gloor is an Association of Mature American Citizens certified social security advisor. To submit a question, visit amacfoundation.org/programs/social-security-advisory or email ssadvisor@amacfoundation.org.
