CARES Act RMD Provision Could Save Your Clients IRMAA Penalties

Normally, once you reach age 70 ½ (age 72 going forward), you must begin to draw down qualified retirement accounts and have those Required Minimum Distributions (RMD’s) taxed as income. This can not only increase the tax burden for your clients but could mean they face Medicare Part B & D penalties under IRMAA. Under the CARES Act, there is an opportunity to forego RMD’s for 2020.

Your clients may elect to not take their 2020 RMD if they have not already done so. If your client has already taken their RMD’s, they can return them before AUGUST 31, 2020, penalty-free. Not only can this reduce tax burdens, but it could also save thousands of dollars in IRMAA penalties.

IRMAA, the Income Related Monthly Adjustment Amount, is the Medicare Part B & D surcharge levied against high earning Medicare Beneficiaries. In 2020, this affects individual filers with a Modified Adjusted Gross Income (MAGI) greater than $87,000 and joint filers with MAGI greater than $174,000 face Medicare Part B & D premiums higher than the baseline premium. These high earning beneficiaries can look for mail from Medicare each year, indicating their penalty amount. If they have a drastic change to life or income, they can also appeal their penalty using SSA Form 44.

Key things your clients need to know:

  • Ensure they return the full amount of the RMD, including any taxes withheld by their custodian.
  • Make sure the funds are marked “return of funds” and not as a contribution, which could be subject to additional taxation.
  • If they take monthly disbursements, make sure to cancel them for the rest of the year when they return their current withdrawals.
  • If they drop below an IRMAA bracket or threshold, they can fill out the SSA Form 44 to appeal the penalty after filing their 2020 taxes next year.


CLICK HERE to See the IRS Announcement

Reach out to the Accounts Team with questions about how to help your clients prevent and reduce IRMAA and other potential penalties!


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