Showing posts with label medicare. Show all posts

Mid-Year Steps to Save on Your Taxes (Fidelity)

Key takeaways

✔ Evaluate the tax impact of life changes such as a raise, a new job, marriage, divorce, a new baby, or a child going to college or leaving home.

✔ Check your withholding on your paycheck and estimated tax payments to avoid paying too much or too little.

✔ See if you can contribute more to your 401(k) or 403(b). It is one of the most effective ways to lower your current-year taxable income.

In the midst of your summer fun, taking time for a midyear tax checkup could yield rewards long after your vacation photos are buried deep in your Facebook feed.

Personal and financial events, such as getting married, sending a child off to college, or retiring, happen throughout the year and can have a big impact on your taxes. If you wait until the end of the year or next spring to factor those changes into your tax planning, it might be too late.

“Midyear is the perfect time to make sure you’re maximizing any potential tax benefit and reducing any additional tax liability that result from changes in your life,” says Gil Charney, director of the Tax Institute at H&R Block.

Here are 9 questions to answer to help you be prepared for any potential impacts on your tax return.

1. Did you get a raise or are you expecting one?

The amount of tax withheld from your paycheck should increase automatically along with your higher income. But if you’re working two jobs, have significant outside income (from investments or self-employment), or you and your spouse file a joint tax return, the raise could push you into a higher tax bracket that may not be accounted for in the Form W-4 on file with your employer. Even if you aren’t getting a raise, ensuring that your withholding lines up closely with your anticipated tax liability is smart tax planning. Use the IRS Withholding Calculator; then, if necessary, tell your employer you’d like to adjust your W-4.

Another thing to consider is using some of the additional income from your raise to increase your contribution to a 401(k) or similar qualified retirement plan. That way, you’re reducing your taxable income and saving more for retirement at the same time.

2. Is your income approaching the net investment income tax threshold?

If you’re a relatively high earner, check to see if you’re on track to surpass the net investment income tax (NIIT) threshold. The NIIT, often called the Medicare surtax, is a 3.8% levy on the lesser of net investment income or the excess of modified adjusted gross income (MAGI) above $200,000 for individuals, $250,000 for couples filing jointly, and $125,000 for spouses filing separately. In addition, taxpayers with earned income above these thresholds will owe another 0.9% in Medicare tax on top of the normal 2.9% that’s deducted from their paycheck.

If you think you might exceed the Medicare surtax threshold for 2017, you could consider strategies to defer earned income or shift some of your income-generating investments to tax-advantaged retirement accounts. These are smart strategies for taxpayers at almost every income level, but their tax-saving impact is even greater for those subject to the Medicare surtax.

3. Did you change jobs?

If you plan to open a rollover IRA with money from a former employer’s 401(k) or similar plan, or to transfer the money to a new employer’s plan, be careful how you handle the transaction. If you have the money paid directly to you, 20% will be withheld for taxes and, if you don’t deposit the money in the new plan or an IRA within 60 days, you may owe tax on the withdrawal, plus a 10% penalty if you’re under age 55.

4. Do you have a newborn or a child no longer living at home?

It’s time to plan ahead for the impact of claiming one more or less dependent on your tax return.

Consider adjusting your tax withholding if you have a newborn or if you adopt a child. With all the expenses associated with having a child, you don’t want to be giving the IRS more of your paycheck than you need to.

If your child is a full-time college student, you can generally continue to claim him or her as a dependent—and take the dependent exemption ($4,050 in 2017)—until your student turns 25. If your child isn’t a full-time student, you lose the deduction in the year he or she turns 19. Midyear is a good time to review your tax withholding accordingly.

5. Do you have a child starting college?

College tuition can be eye-popping, but at least you might have an opportunity for a tax break. There are several possibilities, including, if you qualify, the American Opportunity Tax Credit (AOTC). The AOTC can be worth up to $2,500 per undergraduate every year for four years. Different college-related credits and deductions have different rules, so it pays to look into which will work best for you.

Regardless of which tax break you use, here’s a critical consideration before you write that first tuition check: You can’t use the same qualified college expenses to calculate both your tax-free withdrawal from a 529 college savings plan and a federal tax break. In other words, if you pay the entire college bill with an untaxed 529 plan withdrawal, you probably won’t be eligible for a college tax credit or deduction.

6. Is your marital status changing?

Whether you’re getting married or divorced, the tax consequences can be significant. In the case of a marriage, you might be able to save on taxes by filing jointly. If that’s your intention, you should reevaluate your tax withholding rate on Form W-4, as previously described.

Getting divorced, on the other hand, may increase your tax liability as a single taxpayer. Again, revisiting your Form W-4 is in order, so you don’t end up with a big tax surprise in April. Also keep in mind that alimony you pay is a deduction, while alimony you receive is treated as income.

7. Are you saving as much as you can in tax-advantaged accounts?

OK, this isn’t a life-event question, but it can have a big tax impact. Contributing to a qualified retirement plan is one of the most effective ways to lower your current-year taxable income, and the sooner you bump up your contributions, the more tax savings you can accumulate. For 2017, you can contribute up to $18,000 to your 401(k) or 403(b). If you’re age 50 or older, you can make a “catch-up” contribution of as much as $6,000, for a maximum total contribution of $24,000. Self-employed individuals with a simplified employee pension (SEP) plan can contribute up to 25% of their compensation, to a maximum of $54,000 for 2017.

This year’s IRA contribution limits, for both traditional and Roth IRAs, are $5,500 per qualified taxpayer under age 50 and $6,500 for those age 50 and older. Traditional and Roth IRAs both have advantages, but keep in mind that only traditional IRA contributions can reduce your taxable income in the current year.

8. Are your taxable investments doing well?

If your investments are doing well and you have realized gains, now’s the time to start thinking about strategies that might help you reduce your tax liability. Tax-loss harvesting—timing the sale of losing investments to cancel out some of the tax liability from any realized gains—can be an effective strategy. The closer you get to the end of the year, the less time you’ll have to determine which investments you might want to sell, and to research where you might reinvest the cash to keep your portfolio in balance.

9. Are you getting ready to retire or reaching age 70½?

If you’re planning to retire this year, the retirement accounts you tap first and how much you withdraw can have a major impact on your taxes as well as how long your savings will last. A midyear tax checkup is a good time to start thinking about a tax-smart retirement income plan.

If you’ll be age 70½ this year, don’t forget that you may need to start taking a required minimum distribution (RMD) from your tax-deferred retirement accounts, although there are some exceptions. You generally have until April 1 of next year to take your first RMD, but, after that, the annual distribution must happen by December 31 if you want to avoid a steep penalty. So if you decide to wait to take your first RMD until next year, be aware that you’ll be paying tax on two annual distributions when you file your 2018 return.

No significant changes in your life situation or income?

Midyear is still a good time to think about taxes. You might look into ways you can save more toward retirement, gift money to your children and grandchildren to remove it from your estate, or manage your charitable giving to increase its tax benefits and value to beneficiaries. A little tax planning now can save a lot of headaches in April—and maybe for years to come.

Avoid Medicare Mistakes (thinkadvisor)

jULY 18, 2016

11 Medicare Mistakes to Avoid

The rules of Medicare are complicated and laden with deadlines that are costly to miss

Understanding the alphabet soup of Medicare is hard enough without getting lost in the details. But understanding the options – and what mistakes not to make – can help your clients age gracefully and is an essential part of any retiree's financial plan

First, let’s generally define the Parts of Medicare. Part A, referred to as original Medicare, focuses on hospital coverage. Part B is medical coverage. Part C (also called Medicare Advantage) is a different way of putting Parts A and B into one plan, offered by private companies. Part D is prescription drug coverage.

The rules of Medicare are complicated and laden with deadlines that are costly to miss. Via Kiplinger, here are 11 common Medicare mistakes to avoid:

1. Not reviewing your Part D Plan annually

Medicare Part D is a headache for many to keep on top of. But remember these key points:

Open enrollment runs from Oct. 15 to Dec. 7 every year.
During open enrollment it’s essential to review options because there might be changes to your current plan, meaning your cost and coverage would vary. Be leery of plans that increase premiums, increase your percentage of cost for drugs, or other requirements, like having to use a specific pharmacy, to be covered.
Make sure you check if any drugs you’re on have gone generic, as you might get a nice price reduction.
Medicare also helps you to compare plans. Check out the various links on Medicare.govor AARP.org for more information, guidance and price comparison tools.

2. Picking the same Part D plan as your spouse

Not all Part D plans are alike, and just because a plan works for you it might not be the same for your spouse, who may be taking different prescriptions. Use the Medicare Plan Finder to determine your out-of-pocket costs on each plan. Also keep in mind that some plans require the use of specific pharmacies.

3. Going out of network on private Medicare Advantage plans

If using private Medicare Advantage plans, similar to PPOs or HMOs, you’ll need to utilize the network of doctors and hospitals within the plan to get the lowest co-payments. Be wary that if you go out of network, there may be no coverage at all.

4. Not knowing how to switch Medicare Advantage plans anytime if needed

Even outside the annual open enrollment period, it's possible to switch plans for life-changing events, like moving to a place that isn’t in your current plan’s geographical coverage. And if you’re in the five-star plan, you can make a switch any time during the year. Also, from Jan. 1 to Feb. 15, you may be able to switch from Medicare Advantage to traditional Medicare plus Part D prescription-drug plan.

5. Not considering Medigap within 6 months

Once enrolling in Medicare Part B, you have six months to buy any Medicare supplement plan in your area even if you have pre-existing conditions (and at age 65, who doesn’t?). But after six months, insurers can reject you or charge more depending on your health. It depends on your state rules and insurer’s policies. Check at Medicare.gov for your options.

6. Not opting for Medicare when you turn 65 (most of the time)

Forever young, so who needs Medicare? Well, you’re smart to take advantage of what the government is giving you, often for free. If you are getting Social Security already when you turn 65, you’ll automatically be enrolled in Medicare Part A and Part B. But if you aren’treceiving Social Security benefits, you’ll have to act on your own to sign up. There are reasons to delay: for example, you or your spouse have a full-time job and already get health care coverage as a part of that. Be aware that if you aren’t collecting Social Security benefits, there’s a seven-month period to sign up for Medicare, which runs from three months before the month you turn 65 to three months after.

7. Not signing up for Part B if you have retiree or COBRA coverage

Again, there are many tricky steps in the Medicare signup game. Unless you or your spouse are receiving insurance through a current employer (who has 20 or more employees),Medicare is considered your main health insurance coverage. Retiree coverage, COBRA or severance benefits are NOT primary, and if you don’t sign up for Medicare, you might have gaps in coverage and be late on your Part B premium. So pay attention.

8. Missing the Part B enrollment deadline after leaving your job

It’s an alphabet jungle out there, but this one is easy: if you still have insurance through a job when you turn 65, that’s fine. You don’t need to worry about Part B premiums. But within eight months of leaving your job, you need to sign up or you might have to wait for the next enrollment period, meaning a gap in coverage. Then there is also the possibility of a 10% lifetime late-enrollment penalty.

9. Ignoring income thresholds

Most people pay the minimum of $140.90 a month for Part B premiums and $12.30 per month for Part D. This goes higher depending on your adjusted gross income. So if you are bringing in more than $85,000, that Part B premium could more than double per month, where as Part D could jump fivefold. Be mindful when you are withdrawing from tax-deferred accounts that you don’t go over the income threshold if possible.

10. Not fighting surcharge changes for the year you retire

The Social Security Administration uses your tax returns from the most recent two years to determine if you are subject to an income surcharge, that is you are making more than $85,000 a year. But you can protest it if you prove life-changing events, such as divorce, death of a spouse or retirement.

11. Not minding your HSA contributions

You can’t contribute to HSAs if you are getting Medicare, but if you or your spouse have health insurance through a job (with 20 or more employees) and haven’t applied for Medicare or Social Security benefits, you still can continue to add to your HSA. That said, be careful about contributions in the year you leave your job and sign up for Medicare, as your HSA must be prorated by number of months on Medicare.

Don't Ignore These Retirement Expenses (Blackrock)

Top 10 Forgotten Retirement Expenses

Are you considering all of your retirement expenses in your planning?

You've no doubt got a sense of how much retirement income your 401(k), IRA, Social Security benefit and other investments will be able to generate for you in retirement. But have you taken a careful and detailed look at your expected monthly outgo in retirement?

Understanding your retirement expenses is an equally important step in successful retirement planning.

As you work your way through this interactive retirement expense worksheet, take the time to carefully consider some of the most overlooked retirement expenses:

Health care

Yes, you are eligible for Medicare beginning at age 65, but Medicare comes with monthly premiums. "If you're transitioning from an employer defraying the cost of health insurance to covering all your costs on your own, you need to understand what that means," advises Chad Terry, BlackRock's Director of Retirement and Investment Education. For 2014, the standard monthly premium for Medicare Part B was $104.50, but high-income households paid as much as $230.80 a month. Prescription drug coverage (Medicare Part D) is an additional cost, and you need to prepare for expenses that Medicare does not cover.
Income tax on traditional 401(k) and IRA withdrawals

Even if you don't need the cash, Uncle Sam requires you to take required minimum distributions (RMD) from traditional individual retirement accounts by April 1 of the year after you turn 70 ½ years old. And such withdrawals generally are taxed as ordinary income. Depending on the size of your RMDs, you might even find yourself bumped into a higher tax bracket.

Note: Roth IRAs don't have withdrawal requirements, and you may not have to make 401(k) withdrawals if you are still working.
Income tax on Social Security benefits

Yep, there are more potential taxes on retirement income out there. Individuals with income of more than $34,000, and married couples filing joint federal tax returns with more than $44,000 in income generally owe federal income tax on up to 85% of their Social Security benefit.
Housing

Okay, what you spend on housing isn't exactly forgotten, but have you carefully tallied all the various expenses? It can be an eye opener. According to the Survey of Consumer Expenditures, basic housing costs account for more than one-third of spending by Americans over age 65. Utilities eat up another 9% of retirement spending. Downsizing can be one way to reduce your housing expenses—especially if it means being able to pay off a mortgage. About one in four Americans who are at least 65 years old, who own a home, are still making mortgage payments.
Adding a vacation spot

If you buy or rent a vacation property, you are adding a whole new round of housing costs to your retirement expenses.

Note: You could also encounter different tax rates or treatment for property in another state.
Helping elderly parents

One in five middle-aged Americans provide some financial support for a parent who is at least 65 years old, according to the Pew Research Center. "Helping your family is an important unforeseen expense to think about," Terry says. According to a recentnational survey conducted by caring.com, almost half of the families who provide care spend more than $5,000 a year.
Helping adult children

Forty-eight percent of parents with adult children (at least 18 years old) provided some support to their kids in 2012, according to Pew. That's up from 42% in 2005.
Helping grandchildren

Do you intend to contribute to a 529 college savings plan, or help pay other education costs, such as preschool bills? Those are expenses you should take into account.
Insurance premiums

Don't forget this ongoing expense. Especially if you have long-term care insurance, for which annual premiums can often run more than $2,000.
Inflation

You may be on a fixed income, but there's nothing fixed about many expenses you'll be paying through what can be a very long retirement. In fact, the inflation typically experienced by older Americans is slightly higher than the general inflation rate that generally hovers around 3% or so a year*. (Later life medical expenses are often to blame for that.) What costs $1 today will cost more than $2 in 25 years, assuming an annualized inflation rate of 3%.

Smart Medicare Choices (New York Times)

Beware of Shifting Options Within Medicare Plans

By TARA SIEGEL BERNARD

OCT. 3, 2014

For millions of older Americans, it is time to sift through the mind-boggling array of Medicare plans. There is an average of 29 drug plans to digest, and about 18 options for Medicare Advantage, the plans delivered through private insurers. Then there are the 10 supplemental plans that cover what traditional Medicare does not.

The choices can be paralyzing for anyone, and they can be even more challenging as you age. The Medicare open enrollment season, which runs from Oct. 15 through Dec. 7, gives individuals a chance to rethink it all and reassess whether their plan still fits their needs.

While no broad-based changes are expected, there could be meaningful shifts within individual plans. Maybe your Part D prescription plan will no longer pay for one of your drugs, or you started a new one. Perhaps your Medicare Advantage plan dropped your favorite doctor (or worse, a cancer treatment center) from network.

“People treat this as a momentous decision but they get scared of it, and the thing that worries me is that they don’t make the changes that they should,” said Joe Baker, president of the Medicare Rights Center in New York. “Don’t stay in a plan because you’re overwhelmed with the choices.”

Elizabeth Cooper, a 68-year-old former elementary schoolteacher, weighs her options each year. She has already tried a couple of plans, including one through Medicare Advantage, which lured her in because it had no monthly premium. But the plan required her to shoulder a significant share of her medical costs.

She is healthy now, but she has a history of skin cancer. “I didn’t feel that would give me a sense of ease because of the co-pays and the possible unexpected expenses that can crop up,” said Ms. Cooper, of Birmingham, Ala.

So she backed out of that plan during the trial period, and opted for peace of mind. She enrolled in original Medicare, and bought a supplemental policy for about $135 a month that covers items like deductibles and her share of each bill. After having a few diagnostic tests this year, her decision already paid off.

“Had I been on the Advantage plan, I would have had to come up with the money for each test,” she said. “It turned out to be a reasonable plan for me. And for that reason, I plan to stick with it.”

Here are some ideas on how to approach the decision-making process.

A REFRESHER COURSE Before delving into the details, here is a quick primer on original Medicare: Part A covers hospital and skilled nursing facility stays, as well as some home health visits and hospice care. Part B covers preventive care, doctor visits and outpatient services. Premiums, for most retirees, were $104.90 a month last year and are projected to be the same in 2015.

Deductibles, co-payments and coinsurance (that is when you pay for a percentage of medical services) can be burdensome since there is no out-of-pocket ceiling, experts said. That is one of the reasons most people buy supplemental coverage, known as Medigap, to cover out-of-pocket costs on Parts A and B. People lucky enough to have retiree employer coverage rely on that instead.

Medicare Part D, which is offered only through private insurers, covers drugs. The average monthly premium for such plans is estimated at $32 in 2015, according to the Centers for Medicare and Medicaid Services.

Alternatively, you can just buy a Medicare Advantage plan from a private insurer, also referred to as Part C. It can serve as a one-stop shop because it covers Parts A, B and often a drug plan — and sometimes throws in extras like dental and vision coverage. Average monthly premiums for Advantage plans are estimated to rise to $33.90, a $2.94 increase, in 2015, according to the Centers for Medicare and Medicaid Services. (You pay that in addition to the Part B premium).

ORIGINAL OR ADVANTAGE? Some consumer advocates favor using traditional Medicare with a supplemental plan, largely because it is more predictable and you are free to see any doctor who accepts Medicare.

That is what Mr. Baker said he would recommend for his own grandmother. “I would say enroll in original Medicare and let’s get you the Medigap plan you might need when you are older or sicker,” he said. “If you are in original Medicare and you have a Medigap plan, you are pretty much set for life if you are happy with those things.”

Medigap, with 10 plan levels that are labeled with letters from A to N, is federally standardized coverage, which means coverage must be exactly the same across insurers. For instance, the option known as Plan F will pay for your Part A and Part B deductibles. “This is one area, once you decide on the level of coverage you want, where you can go for the lowest price because you know Plan F will be exactly like any other Plan F,” said Jocelyne Watrous, advocate at the for the Center for Medicare Advocacy.

Depending on the plan, the total cost of your premiums could come close to your final out-of-pocket cost for the year. In Connecticut, for instance, one of the most comprehensive Medigap policies is called Plan F. It costs an individual about $218 a month, or $2,622 annually. “But that’s it,” Ms. Watrous said. “You will pay that premium and it will cover all of your co-payments and deductibles.”

If you are contemplating switching from Medicare Advantage back to original Medicare — and you want to buy a supplemental policy — that is something you may want to do while you are younger and healthier. Later on, coverage may become more expensive or you can be denied altogether. With some exceptions, individuals are guaranteed coverage only if they buy it during a special period six months after their 65th birthday. During that time, insurers cannot refuse to sell you a policy because of a pre-existing condition or other medical issue, nor can they charge you more.

Outside of that safe period, you aren’t guaranteed coverage under federal law, though many states, including New York, extend greater protections. It is important to ask your local State Health Insurance Assistance Program, or SHIP agency, for more details. After you buy a Medigap policy, it generally cannot be canceled because you are old or sick.

ADVANTAGE Nearly 16 million people, or 30 percent of all Medicare beneficiaries, enroll in a Medicare Advantage plan. Most people are attracted by the plans’ enticingly low and sometimes zero premiums and, for certain services, low co-payments. Some even offer limited dental or vision coverage, advocates said.

The drawback of Advantage plans are their limited networks of providers. Doctors can drop out midyear. And consumers are responsible for all cost-sharing, which can be unpredictable. Those are capped at an out-of-pocket limit for in-network services of $6,700 in 2015, although the Center for Medicare and Medicaid Services recommends a limit of $3,400, according to Kaiser.

But it is difficult to calculate how fast you might reach those ceilings. “The cost-sharing requirements are often harder to compare because it requires consumers to anticipate what their health care needs might be,” said Tricia Neuman, director of the Medicare policy program at Kaiser. “Some advisers suggest considering what services you would need if you were sick and take a careful look at potential costs under various plans.”

People who travel frequently or who spend a significant chunk of time in another state also need to ensure that they will be covered. “Snowbirds need to consider whether the networks and coverage extends to two places,” said Nicole Duritz, vice president for health, education and outreach at AARP.

If you are already enrolled, the “annual notice of change” sent to plan enrollees will detail changes in coverage, costs and networks. But if you are dissatisfied with your Advantage plan for any reason, you can unenroll from Jan. 1 to Feb. 14 and switch to original Medicare.

DRUGS Even if you are happy with your Part D coverage, don’t assume it will remain exactly the same. Lists of covered drugs often change or the company may insert new restrictions, limiting quantities or requiring you to try another drug first.

Go to the Medicare website’s Plan Finder, where you can enter your drugs, the dosage and frequency, as well as where you like to buy them. It will then show you what the plans cover and your total estimated costs for the year. “The plans are so complicated and there is so much variation and the only way to really compare is to use the Plan Finder,” Ms. Watrous said.

Don’t shop on price alone. “The best and cheapest plan for you is the one that covers your drugs the best,” said Mr. Baker, who advised calling the plan, or even your doctor or pharmacist, who has a lot of interaction with the different plans.

RESOURCES Besides local SHIP agencies, advocates suggest that people check out the latest Medicare & You booklet, which all 54 million enrollees should have received in the mail by now. It’s remarkably clear. To talk to someone live, call 1-800-Medicare. Whatever you do, Mr. Baker advised, “Don’t renew blindly.”

OJOS11

What You Will Find Here

READING LIST

Blog List

Mid-Year Steps to Save on Your Taxes (Fidelity)

Midyear tax check: 9 questions to ask

1. Did you get a raise or are you expecting one?