Most people spend $134 per month for Medicare Part B medical insurance in 2018, but some higher-income beneficiaries pay a surcharge for this coverage.
If your adjusted gross income (plus tax-exempt interest income) is more than $85,000 if you’re single or $170,000 if you’re married filing jointly, you have to pay from $187.50 to $428.60 per month in 2018 for Part B. You also have to pay an extra $13 to $74.80 each month for Part D prescription-drug coverage.
Even if you’re retired, your income can easily cross the threshold if you have a taxable pension or withdraw money from tax-deferred retirement accounts.
You may be able to reduce your income and minimize the surcharge; you can also contest it. The surcharge is generally based on your last tax return on file, meaning your 2017 income is used to determine the 2019 surcharge. But if you’ve experienced certain life-changing events since then, such as retirement, divorce or the death of a spouse, you can ask the Social Security Administration to use your more recent income when calculating any surcharge for the year.
Submit Form SSA-44 (available at www.ssa.gov; search for “life-changing event”) to the Social Security Administration with evidence (such as a statement from your employer with the date of your retirement) that you experienced an eligible life-changing event, plus an estimate of your reduced income for the year.
You can’t request the reduction until after the life-changing event has occurred, but it’s a good idea to submit the paperwork as soon as possible, says Darren Lutz, a spokesman for the Social Security Administration. If you have to pay the surcharge for a few months while the request is being processed, your extra premiums will eventually be refunded.
The income that triggers the surcharge is not adjusted for inflation, so even more people are likely to get hit in the future. Start planning in advance to help reduce your adjusted gross income in retirement and minimize the surcharge.
“It’s really important to look at how you’re invested ahead of time,” says Ron Mastrogiovanni, CEO of HealthView, which focuses on health care costs.
He recommends contributing to a Roth 401(k) or Roth IRA. Money from those accounts can be withdrawn tax-free in retirement and is not included in the surcharge calculation. (But be careful about converting money from a traditional IRA to a Roth within two years of signing up for Part B because that will increase your income for the year.)
You can also contribute to a health savings account before you enroll in Medicare and use the money tax-free for Medicare premiums and other medical expenses.
Those withdrawals won’t be included in the surcharge calculation. After age 701/2, you can transfer up to $100,000 from a traditional IRA to charity each year, which counts as your required minimum distribution but isn’t included in your adjusted gross income and doesn’t count toward the surcharge.
Kimberly Lankford is a contributing editor to Kiplinger’s Personal Finance magazine. Send your questions and comments to email@example.com.