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That Extra Penny in Retirement Income Can Really Cost You

Making more money can mean much higher Medicare premiums for some people.

10/18/2020 11:30:00 AM

Medicare has six income brackets that determine premiums, and going just a penny over an annual income threshold can cost you hundreds of dollars in additional premium expenses for a year

Making more money can mean much higher Medicare premiums for some people.

Money in a Roth IRA can be spent without pushing retirees into a higher Medicare premium bracket.Photo:Eve Edelheit for The Wall Street JournalByNeal TemplinOct. 15, 2020 6:00 am ETHere’s something most people nearing the age of 65 don’t know: Extra income in retirement—even as little as one penny—can mean much higher Medicare premiums.

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Medicare has six income brackets that determine premiums, and going just a penny over an annual income threshold can cost you hundreds of dollars in additional premium expenses for a year.“It’s a big surprise to a lot of people,” says financial adviser Megan Miller of Boulder, Colo., who adds that many clients assume Medicare will be free.

Fortunately, there are steps you can take to lower your income for Medicare purposes and thus avoid paying higher-than-necessary premiums. These include converting money from tax-deferred accounts to Roth IRAs, using qualified charitable donations that don’t show up on your income-tax statement, and asking the government for special consideration when your income drops from one year to the next.

Here’s how the Medicare math works. If you’re a single person with modified adjusted gross income up to $87,000, or a married couple with income up to $174,000, you will pay thebasic Medicare premium this year of $144.60 monthly. (Part B premiums for 2021 haven’t been released yet.) But the premiums rise quickly. For a single person earning more than $163,000 and less than $500,000, or a couple filing jointly who earn above $326,000 and less than $750,000, the premium is $462.70 a month per individual.

Read more: The Wall Street Journal »

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