1099R From Variable Life Policy

[frogkarma]

This year I cashed out a PrinFlex life insurance policy from Principal.  The Gross Distribution was $170k and change, while the taxable amount was $70k and change.  The gross distribution shows up as income for the year and I am concerned that this will affect my Medicare payments in 2 years (IRMAA).  The non-taxable portion is a partial reimbursement for premiums paid after tax.  Why does it then show up as income?

[dmertz]

Only the taxable amount is included in your MAGI for the purpose of Medicare IRMAA.

The gross amount of this being "income" just means that it's something that needs to be included on Form 1040 line 5a to indicate that this distribution has been entered.  Only the taxable $70k that is included on line 5b has any effect on your AGI and the rest of your tax return.

[JulieS · Accepted solution]

Yes, the gross distribution appears on line 5a, but only the taxable amount on line 5b is included in your MAGI for the purpose of determining income-related monthly adjustment amount (IRMAA). 

IRMAA Modified Adjusted Gross Income (MAGI) is the sum of:

• The beneficiary’s adjusted gross income (AGI) (found on line 11 of the Internal Revenue Service (IRS) tax filing form 1040), plus
• Tax-exempt interest income (line 2a of IRS Form 1040).

Follow this link to see the underlying rules from the SSA.