Medicare premiums rise dramatically for individuals in higher-income brackets, but financial advisors can help their clients reduce those fees with a bit of planning, BankInvestmentConsultant writes.
It’s All About Timing
This year, Medicare Part B premiums for people earning $85,000 or less filing separately, or less than $170,000 filing jointly, are $134 per month per person, the publication writes.
But those premiums balloon more than threefold for some high-income earners, who must pay a so-called “income-related monthly adjustment amount,” BankInvestmentConsultant writes. For people earning above $214,000 filing individual tax returns, or above $428,000 for those filing jointly, that IRMAA translates to Part B premiums of a whopping $428.60 per month per person, according to the publication.
What’s more, those who are paying toward the higher end of the scale for Medicare also pay up to $76 more per month for prescription drug coverage, BankInvestmentConsultant writes. And that income threshold is calculated taking into account even tax-exempt interest income, according to the publication. Furthermore, while the income thresholds aren’t going up with inflation until 2020, they may get up to a maximum of $564 by 2025, BankInvestmentConsultant writes.
Advisors can save their clients a lot of money by being aware of the two-year lag in how Medicare calculates income, according to the publication.
For example, the income a client earns in 2017 will only determine their Medicare Part B premiums for 2019, BankInvestmentConsultant writes. For clients entering retirement, this could mean they get slapped with a higher premium right before their income drops off, according to the publication.
But clients can request a reduction in how their income is calculated with a simple call or visit to the Social Security Administration to declare that they’ve stopped working, Kathy Stepp, principal at Stepp & Rothwell, tells BankInvestmentConsultant. Other acceptable reasons for a reduction are death of a spouse, marriage, divorce, annulment, loss of income-producing property and more, according to the publication.
Advisors should also prepare their clients for higher premiums in cases of outlier years, such as those in which the client sells capital assets or exercises stock options, Stepp tells BankInvestmentConsultant. And for clients with persistently high incomes, one way to ensure they’re not paying thousands more dollars for Medicare is to gradually move money from traditional IRAs into Roth IRAs before they turn 70.5 years old, Diahann Lassus, president and co-founder of Lassus Wherley, tells the publication.
She also suggests paying attention to year-end fund distributions and weighing the tax implications, combined with the effect on Medicare premiums, of selling the fund rather than taking the distribution, according to BankInvestmentConsultant.
Stepp, meanwhile, suggests comparing itemized and standard deductions and alternating years to gain the maximum benefit, as well as timing taxable events, according to the publication. The key, he tells BankInvestmentConsultant, is to stay focused on keeping taxable income down.
Commentary on BankInvestmentConsultant article by Donald Jay Korn
Posted by: The Wealth Advisor
