Avoid a Medicare Trap
Most Americans will sign up for Medicare Health Insurance benefits when they reach the age of 65. There are a few exceptions, such as those who are still employed and have employer provided medical coverage that far exceeds Medicare Insurance benefits.
Medicare calculates your initial and ongoing monthly insurance payments for Medical Insurance and Medicare Drug plans based on your income as shown on your annual tax filings going back two years. For example, if you file to receive Medicare benefits in 2021, Medicare will calculate your required monthly payments based on your 2019 income.
Medicare charges their monthly insurance rates based on each recipients Modified Adjusted Gross Income (MAGI). The MAGI is your total income less certain adjustments such as self -employment insurance and IRA contribution deductions plus tax exempt income excluding itemized deductions or the standard deduction. When planning for Medicare Insurance be aware of the trap called the Income Related Monthly Adjustment Amount (IRMAA).
Medicare Part B (Medical Insurance) IRMAA Trap
The Medicare minimum monthly premium for Medicare Part B Insurance is $1,782 per year ($148.50 per month) for people who have MAGI of less than $88,000. As this example illustrates below, keep your income below $222,000 to avoid the Medicare IRMAA increase of $1,303.80 per year, a 33% savings in total Medicare premiums.
In the current year, joint filers MAGI is below $222,000, and they pay $2,494.20 per year, ($207.90 per month), not the base pay of $1,782 as is frequently advertised in the news. If the joint filer’s MAGI is between $222,000 and $276,000, they pay $3,564.00 ($297.0 per month), a 50% increase, $1,782 extra per year. For incomes in an even higher IRMAA of above $330,000 they would pay $5,702.40 ($475.20 per month) which is 220% extra cost over the minimum Part B! When possible, avoid having your MAGI creep up to a higher IRMAA rate on your Part B as shown above.
Medicare Part D IRMAA Medicare Drug Plan Trap
IRMAA affects Part D Drug Plans too. The Medicare monthly premium for Medicare Part D (Drug Plans) is your plan premium. Here is an example in which the plan premium is $1,200 ($100 per month) with joint filer incomes for 2021. If your MAGI is between $176,000 and $222,000 you pay $1,347.60 per year ($12.30 +100 per month plan premium). Income between $222,000 and $276,000, and you pay a higher Part D of $1,581.60 per year ($31.80+$100 per month).
Joint filer’s total part B and D premiums with income below $222,000 is $3,841.80 per year ($2494.20+1,347.60). The total extra cost if your income is between $222,000 and $276,000 for Part B and D will be $5,145.60 ($3564.00+$1,581.60), an increase of 33%, $1,303.80.
For more information on Medicare, and Income Related Monthly Adjustment Amount (IRMAA) See the link:
Your questions and comments are welcome regarding these important planning issues.
We are pleased to offer a complimentary meeting to discuss your questions on these important tax and wealth management issues.
This article is for informational purposes only and is not to be construed as investment or tax advice. Readers are strongly advised to consult with their professional advisors before attempting to employ any concepts stated herein.
How To Make The Most Of The Blog?
Be sure to read the article with the mindset ‘How could this apply to our business and personal circumstances.’ Thinking of it that way will guarantee that you get value. Better yet, take notes as you read and commit to having the ideas implemented by the time the next edition arrives. Also, make copies for each team member. To really make sure something positive happens, work with your retirement plan specialist to talk your team through the ideas and how to set a schedule for getting them implemented. We’re here to help you get started.
An Important Message
While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.
All rights to the content in this publication are reserved by RSW Wealth Management. Any use of the content outside of this format must acknowledge RSW Wealth Management as the original source.