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Strategies that can help you avoid paying extra Medicare premiums


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For some retirees, there is a surcharge associated with the Medicare premium that can increase their household budget.

Most Medicare enrollees pay the standard premium for Part B (outpatient care) and Part D (prescription drugs). However, an estimated 7% of Medicare’s 64.3 million beneficiaries end up paying extra because their income is high enough that income-related monthly adjustments, or IRMAA, have in effect, according to the Centers for Medicare & Medicaid Services.

Whether you have to pay the surcharge or not is based on revised adjusted gross income as defined by the Medicare plan: your adjusted gross income plus tax-free interest income. For 2022, the IRMAA comes into effect when that amount is more than $91,000 for individuals or $182,000 for couples filing jointly. The higher your income, the higher the surcharge.

“You only have to spend 1 dollar for that money [lowest] stop and you have to follow IRMAA,” says certified financial planner Barbara O’Neill, owner and CEO of Money Talk, a financial education company.

“If you’re close to that level or about to move up the ladder, you really have to be proactive,” says O’Neill.

In other words, there are a number of planning strategies and techniques that can help you avoid or minimize those IRMAAs. Here are four things to consider:

1. Focus on what you can control

2. Consider converting to a Roth IRA

One way to reduce your taxable income is to avoid having all your eggs nest in retirement accounts that have distributions that are taxed as ordinary income, such as a traditional IRA or 401(k) ). So whether you’re signed up for Medicare or not, it could be worth it convert taxable assets to a Roth IRA.

Roth contributions are taxed upfront, but qualified withdrawals are tax-free. This means that while you’ll pay taxes now on the converted amount, a Roth account will provide tax-free income – as long as you’re at least 59 and a half years old and the account has been open for more than five years, or you meet an exclusion.

“You have to pay a little more now to avoid the higher tax bracket or the IRMAA bracket later,” Meinhart said.

It also helps that the Roth IRA has no minimum distribution requirements, or RMDs, for the lifetime of the holder. The RMD is the amount that must be withdrawn from a traditional IRA as well as a traditional and Roth 401(k) after you turn 72.

Once the RMD from traditional accounts becomes active, your taxable income may increase enough to make you subject to IRMAA or to a higher amount if you have paid the surcharge.

“A lot of people get into trouble not taking money out of their 401(k) or IRA, and then they have their first RMD and it puts them in one of those IRMAA brackets,” Meinhart said.

3. Capital return tracking

If you have assets that can generate a taxable profit on sale – i.e. investments in a brokerage account – it may be worth assessing how well you can manage them. capital gains.

While you can time the sale of a highly valued stock to control when and how you’re taxed, some mutual funds have a way of surprising investors at the end of the year with high returns. capital and dividends, both of which are included in the IRMAA calculation.

O’Neill, of Money Talk, said: “With mutual funds, you don’t have a lot of control because they have to pass the profits on to you. “The problem is you don’t know how big those distributions are going to be until very late in the tax year.”

Depending on your specific situation, experts say, you might consider holding exchange-traded funds instead of mutual funds in your brokerage account due to their tax efficiency.

For investments that you can part-time, it’s important to remember benefits of tax-loss harvesting as a way to minimize your taxable income.

That is, if you sell the property at a loss, you can use those losses to offset or reduce any gains you receive. Generally, if the loss exceeds the profit, you can use up to $3,000 per year in your ordinary income and carry the unused amount to future tax years.

4. Tap your charity side

If you are at least 70 years old, a Eligible charitable contributions, or QCD, is another way to reduce your taxable income. Contributions are transferred directly from your IRA to a qualifying charity and are excluded from your income.

“It’s one of the few ways you can actually make money from an IRA completely tax-free,” Meinhart said. “And when you’re 72, that charitable distribution can help offset your required minimum distributions.”

The maximum amount you can transfer is $100,000 annually; if you are married, each spouse can transfer $100,000.



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