Of all the elements that contribute to a successful retirement, finding proper health care coverage and the best way to pay for it is critical. If you missed enrolling around your birthday, there is an open enrollment period for Medicare each year from Oct. 15 to Dec. 7. This is also the time in which you can make changes or additions to your existing coverage. Your new coverage will become effective Jan. 1 of the following year.
We wanted to make sure we covered a few concepts for you to keep in mind as you navigate the enrollment process.
How to pay for Medicare
While Medicare Part A may or may not cost you anything, Part B most likely will, and any Medicare Advantage plan (also known as Part C) is most likely going to cost you a monthly premium. The question then becomes, how should I approach covering these expenses in retirement? The answer is going to depend on your specific situation.
Keep in mind that withdrawals from your various retirement or brokerage accounts will carry with them different tax ramifications. For that reason, it’s important to balance withdrawals from higher taxed accounts with the need to meet the fixed amount of premiums you’ll need to pay each month.
To avoid this tax dilemma altogether, consider using a Health Savings Account (HSA), which you may have contributed to while you were working. HSA funds can be withdrawn for any purpose after age 65, but if they’re used to pay for eligible health care expenses or Medicare premiums, you won’t pay any tax or penalty. Keep in mind that, if you’ve already started taking Social Security payments, those funds can also be used to pay your premiums.
How Medicare premiums are calculated
The amounts you pay for your Medicare Part B and Part D prescription drug premiums are directly influenced by your modified adjusted gross income (MAGI), which is basically your total amount of income in one year including any tax-exempt interest you may receive. From there, depending on which tax bracket you fall into, your premiums will go up accordingly. Those amounts increase to the point that, if you’re making over $750,000 a year as a married couple, you’re pushed into the highest premium rate each month, which can be over three times larger than the lowest monthly rate.
While there may be certain “life-changing events” that can adjust your premium during the year, it’s important to factor in how much income you’re recognizing during a given year to avoid paying the higher premium amounts. Whether it’s the sale of an asset or a tax mitigation strategy like a Roth IRA conversion, consider the potential income and tax ramifications of these actions. You could end up with a larger tax bill as a result and potentially a significantly larger Medicare premium liability moving forward.
Avoiding complications
To help avoid many of these complications, consider working with a knowledgeable wealth advisor who can help you create cash flow and tax projections. An advisor can also help ensure you’re not caught with a large tax or Medicare bill. With a comprehensive wealth management plan, you can be sure you’re not overpaying for one of the more important health expenses you’ll have in retirement.
Sources
“Medicare Premiums: Rules for High-income Beneficiaries,” ssa.gov.
“Part B Costs,” medicare.gov.
The views expressed are for commentary purposes only and do not take into account any individual personal, financial, legal or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. The opinions are based on information and sources of information deemed to be reliable, but Mariner Platform Solutions does not warrant the accuracy of the information.
Investment advisory services provided through Mariner Platform Solutions, LLC (“MPS”). MPS is an investment adviser registered with the SEC, headquartered in Overland Park, Kansas. Registration of an investment advisor does not imply a certain level of skill or training. MPS is in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which MPS transacts business and maintains clients. MPS is either notice filed or qualifies for an exemption or exclusion from notice filing requirements in those states. Any subsequent, direct communication by MPS with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MPS, including fees and services, please contact MPS or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Please read the disclosure statement carefully before you invest or send money.
Investment Adviser Representatives (“IARs”) are independent contractors of MPS and generally maintain or affiliate with a separate business entity through which they market their services. The separate business entity is not owned, controlled by or affiliated with MPS and is not registered with the SEC. Please refer to the disclosure statement of MPS for additional information.
