#retirementplanning

Primer: Medicare Prescription Drug Coverage (Part D)

If you’re covered by Medicare, here’s some welcome news — Medicare drug coverage can help you handle the rising cost of prescriptions. If you’re covered by Original Medicare, some Medicare Cost Plans, Medicare Private Fee-For-Service Plans, or Medicare Medical Savings Account Plans, you can sign up for a Medicare Prescription Drug Plan (Part D) offered in your area by a private company or insurer that has been approved by Medicare.

Although prescription drug plans vary, all provide a standard amount of coverage set by Medicare. Every plan offers a broad choice of brand name and generic drugs at local pharmacies or through the mail. However, some plans cover more drugs or offer a wider selection of pharmacies (for a higher premium) than others, so you’ll want to choose the plan that best meets your needs and budget.

Most Medicare Advantage (Part C) plans also offer prescription drug coverage.

How much will it cost?

What you’ll pay for Medicare drug coverage depends on which plan you choose. But here’s a look at how the cost of Medicare drug coverage for a standard plan is generally structured. All figures are for 2023.

A monthly premium. Most plans charge a monthly premium. Premiums vary considerably, but average $31.50.(1) This is in addition to the premium you pay for Medicare Part B. You can have the premium deducted from your Social Security check, or you can pay your Medicare drug plan company directly. If your modified adjusted gross income is above a certain amount, you may also pay a Part D income-related monthly adjustment amount (IRMAA). The Social Security Administration will contact you if you have to pay Part D-IRMAA.

Annual deductible. Plans may require you to satisfy an annual deductible of up to $505. Deductibles vary widely, so make sure you compare deductibles when choosing a plan.

Initial coverage phase. Once you’ve satisfied the annual deductible, if any, you’ll generally need to pay 25% of your prescription costs and your Medicare drug plan will pay 75% of your costs until they total $4,660 (including the deductible).

Coverage gap phase. After the initial coverage phase, there’s a coverage gap (also called the “donut hole”). In this phase, you’ll pay no more than 25% of costs for both brand-name and generic drugs.

Catastrophic coverage phase. Once you’ve spent $7,400* out-of-pocket you enter the “catastrophic” phase. Your Medicare drug plan will then generally cover at least 95% of any further prescription costs. For the rest of the year, you’ll pay either a coinsurance amount (e.g., 5% of the prescription cost) or a small copayment for each prescription, whichever is greater.

Again, keep in mind that all figures are for 2023 only, and costs and limits vary among plans. Not all plans will work exactly this way. For example, some plans may charge a copayment that is smaller than 25% of prescription costs in the initial coverage period or offer even lower costs during the coverage gap.

*Costs that help you reach catastrophic coverage for the year include your deductible, what you paid during the initial coverage period, and what you paid in the coverage gap. The discount you get on brand-name drugs also counts — you get credit for almost the full price of brand-name drugs purchased in the coverage gap, because you get credit for both the discounted price you actually paid (25% of the cost) and what the manufacturer paid to discount the price for you (70% of the cost).

What if you can’t afford coverage?

Extra help with Medicare drug plan costs is available to people who have limited income and resources. Medicare will pay all or most of the drug plan costs of people who qualify for help. If you haven’t already received a letter telling you that you have automatically qualified for help, you can apply online at the Social Security website, ssa.gov, or at your local Medicaid office.

When can you join?

Individuals new to Medicare have seven months to enroll in a drug plan (three months before, the month of, and three months after becoming eligible for Medicare). Current Medicare beneficiaries can generally enroll in a drug plan or change drug plans during the annual election period (also called the open enrollment period) that occurs between October 15 and December 7 of each year, and their Medicare prescription drug coverage will become effective on January 1 of the following year. If you qualify for special help, you can enroll in a drug plan at any time during the year. If you have a Medicare Advantage plan, you can switch to another plan with or without drug coverage or switch to Original Medicare (and join a separate Medicare drug plan) during Medicare Advantage’s open enrollment period that runs from January 1 through March 31 each year. Certain other events may qualify you for a Special Enrollment Period outside of the annual election period when you can enroll in a plan or switch plans.

If you already have Medicare drug coverage, remember to review your plan each fall to make sure it still meets your needs. Before the start of the annual election period, you should receive a notice from your current plan letting you know of any important plan modifications or additional plan options. Unless you decide to make a change, you’ll automatically be re-enrolled in the same drug plan for the upcoming year.

Do you have to join?

No. The Medicare prescription drug benefit is voluntary. However, when deciding whether or not to enroll, keep in mind that if you don’t join when you’re first eligible, but decide to join in a future year, you’ll pay a premium penalty that will permanently increase the cost of your coverage.

There’s an exception to this premium penalty, though, if the reason you didn’t join sooner was because you already had creditable prescription drug coverage, defined as coverage through another source (such as employer health plan) that was at least as good as the coverage available through Medicare. If you have coverage through another source, talk to your benefits administrator, insurer, or plan before making changes to your coverage. If you drop your coverage, you may not be able to get it back.

What happens after you join?

Once you join a plan, you’ll receive a prescription drug card and detailed information about the plan. In order to receive drug coverage, you’ll generally have to fill your prescription at a pharmacy that is in your drug plan’s network or through a mail-order service in that network. When you fill a prescription, show the card to the pharmacist (or provide the card number through the mail) even if you haven’t satisfied your annual deductible, so that your purchase counts toward the deductible and benefit limits.

What if you have questions?

If you have questions about the Medicare prescription drug benefit, you can get help by calling 1-800-MEDICARE (1-800-633-4227) or by visiting the Medicare website at medicare.gov. The website includes a Medicare Plan Finder that you can use to find information about plans in your area. If you need personalized counseling and assistance, you may want to contact your State Health Insurance Assistance Program (SHIP).

You should compare the details of each plan available in your area before choosing one. You can get personalized plan information at the Medicare website, medicare.gov, or by calling a Medicare counselor at 1-800-MEDICARE.

New for 2023

Part D plans will now offer all covered insulin products at a monthly cost of $35 or less. They will also fully cover recommended vaccines (no copays, deductibles, or coinsurance will apply under Part D).

Choosing a Medicare Prescription Drug Plan

  • Start by making a list of all the prescription drugs you currently take and the price you pay for them to see how much you’re spending on prescription drugs.
  • Next, compare plans at the Medicare website. Does each plan cover all of the drugs you currently take?
  • What deductible and copayments does each plan require?
  • What monthly premium will you pay?
  • What pharmacies are included in each plan’s network?
  • Finally, ask for help. Personalized counseling is available through your State Health Insurance Assistance Program, or you can call a Medicare customer representative at 1-800-MEDICARE.

Sources:

  1.  Centers for Medicare & Medicaid Services

Prepared by Broadridge. Edited by BFSG. Copyright 2023.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

2024 Key Numbers for Health Savings Accounts (HSAs)

The IRS recently released the 2024 contribution limits for health savings accounts (HSAs), as well as the 2024 minimum deductible and maximum out-of-pocket amounts for high-deductible health plans (HDHPs).

What is an HSA?

An HSA is a tax-advantaged account that enables you to save money to cover healthcare and medical costs that your insurance doesn’t pay. The funds contributed are made with pre-tax dollars if you contribute via payroll deduction or are tax deductible if you make them yourself using after-tax dollars. (HSA contributions and earnings may or may not be subject to state taxes.) Withdrawals used to pay qualified medical expenses are free from federal income tax.

You can establish and contribute to an HSA only if you are enrolled in an HDHP, which offers “catastrophic” health coverage and pays benefits only after you’ve satisfied a high annual deductible. Typically, you will pay much lower premiums with an HDHP than you would with a traditional health plan such as an HMO or PPO.

If HSA withdrawals are not used to pay qualified medical expenses, they are subject to ordinary income tax and a 20% penalty. When you reach age 65, you can withdraw money from your HSA for any purpose; such a withdrawal would be subject to income tax if not used for qualified medical expenses, but not the 20% penalty.

Importantly, make sure to stop contributing to your HSA at least six months before you do plan to enroll in Medicare. This is because when you enroll in Medicare Part A, you receive up to six months of retroactive coverage, not going back farther than your initial month of eligibility. If you do not stop HSA contributions at least six months before Medicare enrollment, you may incur a tax penalty.

What’s changed for 2024?

Here are the updated key tax numbers relating to HSAs for 2023 and 2024.

Prepared by Broadridge. Edited by BFSG. Copyright 2023.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

Tax Planning Strategies to Reduce Your Tax Burden Now (2023 Update)

By:  Arash Navi, CFP®, CPA, Controller & Wealth Manager

Our goal is to help our clients build and grow their wealth and tax planning plays an important role in this process. We recommend that you mark your calendar to review your finances in the first week of October, annually. Take this time to review your income for the year from employment, businesses, investments, or any other sources. This will help you project your tax liability ahead of time and allow your financial advisor or tax accountant to find strategies to reduce your tax burden. Implementing this consistently and reducing your tax burden annually will have a compounding impact over the years and increase your retirement nest egg. Here are a few tax planning strategies to keep in mind:

IRAs and Retirement Plans

Take full advantage of tax-advantaged retirement accounts. By contributing to Traditional IRAs and employer-sponsored retirement plans such as 401(k) plans, you can reduce your taxable income and lower your taxes. For 2023, you can contribute up to $22,500 to a employer-sponsored retirement plan ($30,000 if you’re age 50 or older) and up to $6,500 to a Traditional IRA ($7,500 if you’re age 50 or older).

Roth Conversions

If you are in a lower tax bracket this year and expect your income tax rate to increase in the future, you may want to consider a Roth IRA conversion. You can convert all or part of your pre-tax retirement account into a Roth IRA and pay the taxes now at a lower rate. The funds in your Roth IRA will continue to grow tax free, and you will have more income flexibility in retirement. Watch here as we make a case for Roth conversions and how they could benefit you.

Charitable Donation

If you are charitably inclined, you should plan your donations in advance to ensure you maximize the tax benefits. For those over age 70.5, you may want to consider Qualified Charitable Distribution (QCD), where you can transfer up to $100K from your IRA to a charity. This method not only reduces your Required Minimum Distribution (RMD), but the distribution is also excluded from your taxable income. Beginning in 2024, the QCD limit ($100k) will change as it will be linked to inflation. Also, with the passage of the SECURE Act 2.0, starting in 2023 taxpayers may take advantage of a one-time gift up to $50k (adjusted annually for inflation) to fund a Charitable Remainder Unitrust, Charitable Remainder Annuity Trust, or a Charitable Gift Annuity. This is an expansion of the type of charity, or charities, that can receive a QCD.

Tax Bracket Management

The IRS uses a progressive tax system which means as your income grows, it is subject to a higher tax rate. Therefore, it is important to know which of the seven federal tax brackets you will fall into. In your high-income years, you may want to reduce your tax liability by increasing your retirement contribution or utilize a tax-loss harvesting strategy. On the other hand, in low-income years, you may want to consider Roth IRA conversions, accelerate income recognition, or postpone deductible expenses.

Tax planning should be part of every individual investor’s financial and retirement plan. There are many strategies available for individuals and business owners, but it requires proper planning throughout the year. If you’d like to learn more about tax planning strategies unique to your personal circumstances, feel free to Talk With Us!

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

RMD Relief and Guidance for 2023

In early 2022, the IRS issued proposed regulations regarding required minimum distributions (RMDs) to reflect changes made by the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. The IRS has held off on releasing final regulations so that it can address additional changes to RMDs made by the SECURE 2.0 Act of 2022, which was passed in late 2022. In the meantime, the IRS has issued interim RMD relief and guidance for 2023. Final RMD regulations, when issued, will not apply before 2024.

Relief with respect to change in RMD age to 73

The RMD age is the age at which IRA owners and employees must generally start taking distributions from their IRAs and workplace retirement plans, though an exception may apply if an employee is still working for the employer sponsoring the plan. For Roth IRAs, RMDs are not required during the lifetime of the IRA owner.

The SECURE 2.0 Act of 2022 increased the general RMD age from 72 to 73 (for individuals reaching age 72 after 2022). Since then, some individuals reaching age 72 in 2023 have taken distributions for 2023 even though they do not need to take a distribution until they reach age 73 under the changes made by the legislation.

Distributions from IRAs and workplace retirement plans can generally be rolled over tax-free to another retirement account within 60 days of the distribution (RMD amounts cannot be rolled over). The 60-day window for a rollover may already have passed for some individuals who took distributions that were not required in 2023.

To help those individuals, the IRS is extending the deadline for the 60-day rollover period for certain distributions until September 30, 2023. Specifically, the relief is available with respect to any distributions made between January 1, 2023, and July 31, 2023, to an IRA owner or employee (or the IRA owner’s surviving spouse) who was born in 1951 if the distributions would have been RMDs but for the change in the RMD age to 73.

Tip: Generally, only one rollover is permitted from a particular IRA within a 12-month period. The special rollover allowed under this relief is permitted even if the IRA owner or surviving spouse has rolled over a distribution in the last 12 months. However, making such a rollover will preclude the IRA owner or surviving spouse from rolling over a distribution in the next 12 months. Note that an individual could still make direct trustee-to-trustee transfers since they do not count as rollovers under the one-rollover-per-year rule.

Inherited IRAs and retirement plans

RMDs for IRAs and retirement plans inherited before 2020 could generally be spread over the life expectancy of a designated beneficiary. The SECURE Act changed the RMD rules by requiring that in most cases the entire account must be distributed 10 years after the death of the IRA owner or employee if there is a designated beneficiary (and if death occurred after 2019). However, an exception allows an eligible designated beneficiary to take distributions over their life expectancy and the 10-year rule would not apply until after the death of the eligible designated beneficiary in that case.

Eligible designated beneficiaries include a spouse or minor child of the IRA owner or employee, a disabled or chronically ill individual, and an individual no more than 10 years younger than the IRA owner or employee. The entire account would also need to be distributed 10 years after a minor child reaches the age of majority (i.e., at age 31).

The proposed regulations issued in early 2022 surprised many when they suggested that annual distributions are also required during the first nine years of such 10-year periods in most cases. Comments on the proposed regulations sent to the IRS asked for some relief because RMDs had already been missed and a 25% penalty tax (50% prior to 2023) is assessed when an individual fails to take an RMD.

The IRS has announced that it will not assert the penalty tax in certain circumstances where individuals affected by the RMD changes failed to take annual distributions in 2023 during one of the 10-year periods (similar relief was previously provided for 2021 and 2022). For example, relief may be available if the IRA owner or employee died in 2020, 2021, or 2022 and on or after their required beginning date* and the designated beneficiary who is not an eligible designated beneficiary did not take annual distributions for 2021, 2022, or 2023 as required (during the 10-year period following the IRA owner’s or employee’s death). Relief might also be available if an eligible designated beneficiary died in 2020, 2021, or 2022 and annual distributions were not taken in 2021, 2022, or 2023 as required (during the 10-year period following the eligible designated beneficiary’s death).

*The required beginning date is usually April 1 of the year after the IRA owner or employee reaches RMD age. Roth IRA owners are always treated as dying before their required beginning date.

Prepared by Broadridge. Edited by BFSG. Copyright 2023.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

Should I take a loan from my employer-sponsored retirement plan?

By: Tina Schackman, CFA®, CFP®, Senior Retirement Plan Consultant

It’s important to note that not all retirement plans allow loans to be taken, so you should consult with your benefits department or contact your plan’s administrator before considering a loan from your employer-sponsored retirement account (i.e., 401k, 403b, etc.). Whether or not to take a loan from your employer-sponsored retirement account is a significant decision that comes with both potential advantages and drawbacks.

Advantages of a Loan

  1. Accessibility: If you have a financial emergency or immediate need for a large sum of money, a loan might be an accessible source of funds, especially if you have difficulty getting a loan elsewhere.
  2. No Credit Check: Your credit score isn’t a factor in obtaining a loan because you’re borrowing your own money.
  3. Potentially Lower Interest Rate: The interest rate on a loan may be lower than what you would pay on a personal loan or credit card debt.
  4. Repayment to Yourself: When you pay the interest on a loan, you’re paying it back into your retirement account, so you’re essentially paying the interest back to yourself.

Drawbacks of a Loan

  1. Opportunity Cost: When you take money out of your retirement account, that money is no longer invested in the market. Therefore, you could miss out on potential growth and compounding interest, which could impact your long-term retirement savings significantly.
  2. Double Taxation on Interest: While the money you borrow from your retirement account isn’t taxed when it’s taken out, the money you repay, including the interest, is done with after-tax dollars. When you retire and begin withdrawing from your retirement account, you’ll have to pay taxes again on those funds.
  3. Loan Repayment After Leaving Job: If you leave your job or are terminated (whether voluntarily or not), you’ll typically have to repay the entire loan within a short time, often 60 days. If you don’t, the remaining balance is considered a distribution and could be subject to income tax, plus a 10% early withdrawal penalty if you’re under age 59 ½.
  4. Possible Reduction in Retirement Contributions: If you’re paying back a loan, you might find it difficult to also continue contributing to your retirement account, especially if finances are tight. This could further reduce your retirement savings and impair your retirement goals.

In general, it’s often recommended to view an employer-sponsored retirement account loan as a last resort after considering other options, such as an emergency fund, budget adjustments, personal loans, or even home equity lines of credit. While a employer-sponsored retirement plan loan might make sense in certain situations, it’s crucial to understand the potential impact on your long-term financial health.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.