If you are like most of the people I tell that to they usually say, what does that even mean? (No pun intended) Well, a Means-tested program from the government is one where they first look at your wages before they see how the program applies to you. Now you might be saying, that does not sound right because everyone who works and pays into the Social Security and Medicare system qualifies for Medicare and you would be correct. But did you know that we don’t all pay the same premium for it?
You can be charged more money for both Medicare part B and part D if the government considers you to be a high-income earner. Now, this is not something that affects everyone but it could affect you if your income is higher in your years leading up to qualifying.
So how exactly does Social Security determine if you must pay higher premiums? They use the most recent federal tax returns the IRS provides to them. This can sometimes be problematic as this means they are often looking about two years back from the date you are applying as you don’t have a tax return for the year you are in. Also, last year’s tax return reflects the income that you made the year before last so they are looking pretty far back. Because they look that far back this can also often be the year that you made some of your best income as you were getting close to retirement and were likely at the top of your pay-scale. It also may not reflect accurately what you will make once you do retire. If they determine that you are a high-income earner they use a sliding scale to see just how much more premiums you will be required to pay. Then they make adjustments based on your adjusted gross income. These adjustments can often ad as little as $53.50 or as much as $294.60 to your part B premium. That means that you would pay this over and above your $135.50 for part B in 2019.
Think these extra premiums are only for high rollers? Think again. These means-tested extra fees kick in for incomes as low as $85,000. And there are lots of traps that can put you over the top without even realizing it. For example, if you sell a home, or sell some stocks, or even if you convert an IRA to a Roth in the wrong year, you could be putting yourself into a higher bracket and be forced to pay more for your Medicare. Even something as simple as being married and filing a separate tax return might save you on taxes but cost you on Medicare.
So what can you do about this? Know the rules or work with someone who does. We help people make the often complicated transition from working years to retirement years an easy transition. While there are countless irreversible decisions you will likely need to make about Medicare, Social Security Claiming, Pensions, group life insurance, and 401K rollovers, you don’t have to go it alone. Give us a call today and see if we can be of some help. There is no charge to meet and nothing to buy at this point.
Disclosure: Investment Advisory Services offered through Retirement Wealth Advisors, (RWA) a Registered Investment Advisor. Rockford Retirement Planning, Inc (RRP) and RWA are not affiliated. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.