Practical Applications of Medicare and Tax Planning for Higher-Income Households

Practical Applications Summary In Medicare and Tax Planning for Higher-Income Households, from the Winter 2019 issue of The Journal of Wealth Management, authors William Reichenstein and William Meyer (both of Social Security Solutions, Inc. and Retiree, Inc. in Overland Park, KS) warn high-income retirees that they may owe more taxes than expected if their income exceeds certain levels. Most people know that income tax rates go up as income rises. However, many do not know that higher-income individuals pay higher Medicare premiums; each time their income exceeds one of several threshold levels set by the Affordable Care Act (ACA), their Medicare premium jumps. Since Medicare is a government program, these premium spikes are effectively tax rate increases. The authors offer strategies that take advantage of the current tax laws to help people avoid Medicare premium spikes and generally lower their lifetime income taxes. The authors’ key recommendations are to report life-changing events that reduce income, make Roth IRA conversions before tax rates are scheduled to increase in 2026, and satisfy charitable giving plans by making qualified charitable distributions from IRAs after age 70½. The authors say these measures can reduce retirees’ taxable income and thus reduce their lifetime income taxes and Medicare premiums.