It’s important to understand how work affects your Medicare benefits, Social Security, and tax situation. Here are some things you need to understand to keep working later in life.
YOU MAY BE POSSIBLE TO POSTPONE THE REGISTRATION FOR MEDICINES
If you’re still working at age 65 and accessing health benefits through your employer — or your spouse’s employer — you may be able to defer Medicare enrollment. If your company has fewer than 20 employees, you should sign up for Medicare, but if it has more than 20 employees, you may be able to delay it.
If given the choice, compare what you would pay for group benefits with what you would pay for Medicare, including any additional coverage and prescription drug benefits. “If group coverage is less, it may make sense not to take Part B and wait until you retire,” says Julie Hall, a certified financial planner in Ann Arbor, Michigan. (Part A is free for most people, so there’s no point in putting that off unless you have an HSA — more on that below.)
Before deferring, check with your benefits department to make sure your employer doesn’t require you to enroll in Medicare.
AN HSA AND MEDICINE DO NOT MIX
If you have a high-deductible health plan along with a health savings account or HSA, keep in mind that you can’t save for an HSA once you’re enrolled in Medicare. An HSA can be a valuable resource for retirement savings, so it’s worth weighing your options if you have access to employer benefits that allow you to defer Medicare.
“I see (an HSA) as a triple tax benefit,” says Diane Pearson, a CFP in Wexford, Pennsylvania, of saving pre-tax money, growing tax-free, and withdrawing pre-tax to cover eligible medical expenses. Pay.
If you receive Social Security, you are automatically enrolled in Medicare Part A when you turn 65; if you want to save for an HSA, you need to defer Social Security benefits. If you plan to enroll in Medicare and you have an HSA, both you and your employer must stop making contributions at least six months before applying for Medicare to avoid tax headaches.
YOUR INCOME AFFECTS YOUR SOCIAL SECURITY PAYMENTS
If you claim Social Security during the final years of your working life, your income may affect your benefits.
For example, in 2022, your Social Security benefits will be reduced by $1 for every $2 you earn over $19,560. In the year you reach full retirement age, the calculations are different: Your benefits are reduced by $1 for every $3 earned over $51,960 until the month before you reach full retirement age. Once you reach full retirement age, the benefit will no longer be cut, no matter how much you earn.
In addition, your Social Security benefits may be taxed. By 2022, people who file an individual tax return with a combined income of more than $25,000 or file jointly with a combined income of more than $32,000 will pay taxes on up to 85% of their Social Security benefits. (Social Security defines “combined income” as the total of your adjusted gross income, non-taxable interest, and half of your Social Security benefits.)
“It doesn’t take a lot of income to get people to pay taxes on some of their Social Security,” said Barbara O’Neill, a CFP in Ocala, Florida.
YOUR INCOME AFFECTS YOUR MEDICINE PREMIUMS
Medicare Part B and Part D are subject to the means-tested monthly adjustment amount, or IRMAA. The more you earn, the higher your premium will be.
In 2022, you’ll pay more for Part B and Part D if your modified adjusted gross income from two years ago was more than $91,000 as a single tax return or more than $182,000 if you filed jointly. The additional costs can add up and experts recommend factoring this into your work plans.
“People might say, ‘I’ll work, but I can only earn so much,'” says O’Neill. “You have to be careful activating the IRMAA.”
This article was provided to The Associated Press by the personal finance site NerdWallet. The content is for educational and informational purposes only and does not constitute investment advice. Kate Ashford is a writer at NerdWallet. Email: [email protected] Twitter: @kateashford.
NerdWallet: How Do I Sign Up for Medicare? https://bit.ly/nerdwallet-hoe-do-i-sign-up-for-medicare
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