Tax planning may impact your Medicare costs. How much retirees pay for Medicare Part B premiums is based on income levels, and an income increase of even $1 can trigger higher tax rates, explains the recent article, “Year-end tax strategies may affect how much retirees pay for Medicare. Here’s what to know” from CNBC.
Social Security beneficiaries will receive a 3.2% increase in benefits in 2024 based on the annual COLA (Cost of Living Adjustment). According to the Social Security Administration, this will result in an estimated increase of more than $50 per month, bringing the average monthly retirement benefit for workers from $1,848 in 2023 to $1,907 in 2024.
How much beneficiaries will actually receive won’t be known until December, when annual benefit statements are sent out. One factor possibly offsetting those benefit increases is the size of Medicare Part B premiums, which are typically deducted directly from Social Security monthly benefits.
Medicare Part B covers physician services, outpatient hospital services, some home health care services, durable medical equipment and other services not covered by Medicare Part A.
Medicare Part B premiums for 2024 have not yet been announced. However, the Medicare trustees have projected the standard monthly premium possibly being $174.80 in 2024, up from $164.90 in 2023.
Some beneficiaries may pay more, based on income, in what’s known as IRMAA or Income Related Monthly Adjustment Amounts. In 2023, it is the standard Part B premium for those who file individually and have $97,000 or less (or $194,000 or less for couples) in modified adjusted gross income on their federal tax return in 2021.
Monthly premiums can go up to as much as $560.50 per month for individuals with incomes of $500,000 and up, for couples with $750,000 and up.
Beneficiaries receive the same Medicare services regardless of the monthly Part B premium rate.
In 2024, the monthly Part B premiums will be based on 2022 federal tax returns. Beneficiaries need to pay attention to how their incomes may change when implementing year-end tax strategies.
For instance, if you do a Roth conversion, taking pre-tax funds from a traditional IRA or eligible qualified retirement plan like a 401(k) and moving them to a post-tax retirement account, you’ll trigger income taxes, which may trigger higher Medicare Part B premiums later.
Tax planning may impact your Medicare costs. People who do end-of-year tax loss harvesting, selling off assets at a loss to offset capital gains owed on other profitable investments, may reduce adjusted gross income and future Medicare premiums.
If you’re taking distributions from IRAs and want to make charitable donations, you might want to make those donations directly from your retirement account, known as a qualified charitable distribution. These funds don’t appear on your tax return and won’t increase income taxes or future Medicare premiums. If you would like to read more about Medicare and tax planning, please visit our previous posts.
Reference: CNBC (Oct. 12, 2023) “Year-end tax strategies may affect how much retirees pay for Medicare. Here’s what to know”
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