Greetings. I trust that you’re well and enjoying life!
Last week I wrote about proposed increases in Medicare premium rates for 2016 being made by the Trustees for Social Security and Medicare. Based on your income you may receive an increase and you may not (see last week’s article for details) however, Medicare premium increases are likely going to be something we will be dealing with on an ongoing basis. Premiums have to go up as the system has exhausted it’s reserves and the demands on it will only increase because of the health care needs of aging boomers.
Every two years Medicare requests your modified adjusted gross income from the IRS and uses it to determine your monthly premium for the following two years. For Medicare purposes MAGI is adjusted gross income (line 37 form 1040) plus tax exempt interest (line 8b). The greater your MAGI, the greater your premium. So the key to reducing premiums is to reduce your income to avoid being placed in a higher premium tier
If you are on Medicare, the beginning of the fourth quarter in the year is a good time to look at your income thus far for the year, to determine if you can take steps to reduce it before year end.
Of course if you need all the income that you can get to sustain your lifestyle, this exercise is not for you. But if you have more income coming in than you need, it pays to examine this and make sure you aren’t being pushed into a higher premium tier than is necessary. You may want to get help from your tax advisor with this analysis and get them to help you understand where you are in the brackets.
You may be in a situation where you can turn off income sources through the end of the year and use cash on hand if you need it for living expenses. You may be able to turn off IRA distributions that you are taking and instead withdraw from a tax free Roth IRA that you own to reduce income. There are a number of strategies you can pursue. The point is that if you can take steps to avoid a higher premium tier you’ll want to, particularly as that higher tier is in force for two full years regardless of where your income falls in the second year.
If you have questions or feel that we can help in any way with this information or any other question about finance don’t hesitate to call.
Jeff Christian CFP, CRPC