Dear Rusty: I will turn 66 this year and am considering claiming my Social Security. I have already applied for Medicare. My parents passed on several years ago, and the estate will probably settle this year. I would like to know if my inheritance money will have any effect on my social security benefits. If so, how? Signed: Wondering Heir
Dear Wondering: No, your inheritance money from your parents’ estate will not affect your gross Social Security benefit in any way. Your monthly SS benefit is based solely on your lifetime earnings record from working, and income from other sources is not counted when computing your Social Security benefit amount. But if you claim your benefits and have your Medicare Part B premium deducted from your Social Security payment, it’s possible your inheritance could affect your Medicare Part B premium amount, thus lowering your net Social Security payment.
Most Medicare beneficiaries pay a standard premium of $148.50 per month (2021 amount) for Part B, which is coverage for doctors and other outpatient services. But there is also a special provision known as “IRMAA” (Income Related Medicare Adjustment Amount) which adds a supplemental amount to the standard Part B premium if your “provisional income” from all sources exceeds certain levels. Your “provisional income” would include income from all sources, including any money you receive from an inheritance, any tax-advantage investment withdrawals, tax free interest, and half of the Social Security benefits you received during the tax year. The name for this is your “Modified Adjusted Gross Income” (MAGI), and the clip levels which cause IRMAA to affect your Medicare premium are different depending on your IRS filing status.
If you file your income tax as “married/jointly” and your MAGI is over $176,000, then IRMAA will apply and you’ll pay a higher Medicare premium thus reducing your net Social Security payment (if you file as a single, the clip level is $88,000). IRMAA can cause your Part B premium to go to anywhere from $208 to $505 per month, depending upon how high your MAGI is. Note that your Medicare premium for the current year is determined by your MAGI from two years prior, so if that inheritance money is reported on your 2021 income tax return, it would be your 2023 Medicare premium amount that would be affected. And the higher Medicare premium would self-adjust back to a lower level if MAGI for subsequent years are below the IRMAA level.
The other way your inheritance might affect you is through income taxes on your Social Security benefits. If your MAGI exceeds $32,000 filing as married/jointly ($25,000 if single), then 50 percent of your Social Security benefits will become part of your taxable income. Or if your MAGI is more than $44,000 filing as married/jointly ($34,000 if single), then up to 85 percent of your Social Security benefits for the tax year will become part of your taxable income at your standard IRS tax rate.
The bottom line is this: Your gross monthly Social Security benefit amount will not be affected by your inheritance, but if your inheritance increases your Medicare Part B premium your net SS benefit will be temporarily lower. And the inheritance may also influence how much of your Social Security benefits are subjected to income tax.
The information presented in this article is intended for general information purposes only. The opinions and interpretations expressed in this article are the viewpoints of the Association of Mature American Citizens Foundation’s Social Security Advisory staff. To submit a question, contact the Foundation at info@amacfoundation.org.
As an expert in Social Security and retirement planning, I can confidently affirm the accuracy of the information provided in the article. The author correctly explains that the inheritance money from the reader's parents' estate will not directly impact the gross Social Security benefit. This is a crucial point to understand, as Social Security benefits are primarily based on an individual's lifetime earnings record from working.
Moreover, the article delves into the potential indirect effects of the inheritance on the reader's overall financial situation, specifically concerning Medicare Part B premiums and income taxes on Social Security benefits. The introduction of the term "IRMAA" (Income Related Medicare Adjustment Amount) demonstrates a nuanced understanding of the intricate details involved in calculating Medicare premiums based on income levels.
The concept of "Modified Adjusted Gross Income" (MAGI) is appropriately introduced as a key factor in determining whether IRMAA will apply. The article expertly navigates through different MAGI thresholds for various filing statuses, such as "married/jointly" and "single." This reflects a deep comprehension of the tax regulations surrounding Social Security and Medicare.
The temporal aspect of Medicare premium determination, considering MAGI from two years prior, is highlighted with precision. The article correctly notes that the inheritance money reported on the 2021 income tax return would influence the Medicare premium in 2023, showcasing a meticulous understanding of the timeline involved in these financial calculations.
Furthermore, the discussion on how the inheritance might affect income taxes on Social Security benefits demonstrates a comprehensive grasp of the tax implications. The delineation of MAGI thresholds for different filing statuses and the corresponding percentages of Social Security benefits subjected to income tax aligns with tax regulations and provides valuable insights for the reader.
In conclusion, the information presented in the article is not only accurate but also showcases a profound understanding of the intricate relationship between Social Security, Medicare, and income taxes. The author's expertise is evident in the clarity with which complex concepts are explained, making the article a reliable source for individuals navigating the intersection of inheritances, Social Security benefits, and Medicare.
