If you think your health care costs will be fixed once you turn 65, you are living in a fantasy world.
A recent report highlights market Watch Warns that standard Part B premiums could nearly double over the next decade. Based on current projections, you could easily pay $5,000 a year for basic coverage through 2035.
And that’s just the base rate. If you are diligent about saving and your income is high, you will be penalized with a surcharge that will significantly increase your monthly bill.
Because Medicare Part B premiums are usually deducted directly from your benefits, it is a harsh reality that they are draining your Social Security increase. You get a cost-of-living adjustment on paper, but Washington takes it back to cover the rising costs of outpatient care and insurance overpayments.
You can’t stop premiums from rising, but you can protect your retirement from the worst damage. Here’s how to fight back.
1. Defuse the IRMAA tax bomb
View your income limits: Once your income crosses a certain threshold, the government imposes an income-related monthly adjustment amount (IRMAA) on your Part B and Part D premiums. This is a cruel punishment. If you make just one dollar over the limit, you’ll be charged the full surcharge for the entire year.
You should plan in advance so you are not hit with the Medicare surcharge. Since Medicare looks at your tax returns from two years ago, the financial steps you take at age 63 will determine your premiums at age 65.
To avoid large, lump-sum withdrawals from traditional retirement accounts, work with an accountant to smooth out your income.
2. Perform a Strategic Roth Conversion
Convert before the IRS pressures you: When you turn 73, the IRS forces you to start taking required minimum distributions (RMDs) from your traditional IRA and 401(k) accounts. These forced withdrawals count as taxable income, which can easily push you into a higher tax bracket and increase your Medicare premiums.
While you’re still in your early 60s, start converting parts of your traditional accounts to Roth IRAs. You’ll pay taxes on the conversion now, but Roth withdrawals later are completely tax-free. Most importantly, those tax-free withdrawals do not count toward the income limits that trigger the Medicare surcharge.
3. Maximize Health Savings Account
Build a Tax-Free Fort: Most people wait until age 65 to figure out how they will pay for health care in retirement. By then it is too late. If you’re still working and enrolled in a high-deductible health plan, a Health Savings Account (HSA) is your best weapon.
There are many ways an HSA can improve your finances, but its triple tax benefit is unmatched. Your contributions are tax-deductible, the money grows tax-free, and withdrawals for medical expenses are tax-free.
Fund it to the limit and pay current medical bills out of your own pocket if you can. Let the investments compound so you have a pool of cash to cover those doubled premiums later.
4. Donate your RMD
Donate to charity, not to government: If you are forced to withdraw money from your traditional IRA and you don’t really need the cash to live, that withdrawal will still increase your adjusted gross income. Mishandling this requirement is one of the most costly mistakes a retiree can make.
If you’re interested in philanthropy and are at least 73 years old, use a qualified charitable distribution. You can transfer money directly from your IRA to a qualified charity. This satisfies your RMD for the year, but the money is never added to your taxable income.
You help a good cause and keep your Medicare premiums balanced.
5. Shop your coverage mercilessly every year
Turn off auto-renewal of your plan: Insurers rely on your satisfaction. They know that most senior citizens automatically renew their coverage without checking the details. This way you get stuck with a plan that quietly raised your out-of-pocket maximum or eliminated your primary doctor.
You need to understand the seven types of Medicare enrollment periods and treat the annual open enrollment period like a job.
use official medicare plan finder A tool to compare your current coverage with new offerings. View attractive zero-premium ads and calculate your total estimated cost. Sometimes it’s far cheaper to pay the estimated premiums for Original Medicare (aka traditional Medicare) and Medigap policies than to get crushed by hidden fees later.