Dear Liz: With the recent stock market correction, I’m considering doing a Roth conversion on an existing IRA now that it’s value less. I can handle the accompanying income tax hit. But while I see loads of ink spilled on how a Roth conversion can increase Medicare premiums, what about Reasonably priced Care Act costs? Is it the identical story there: Will a one-time income spike this yr on account of Roth conversion impact what I pay all next yr for ACA medical insurance?
Answer: Potentially, yes. Roth conversions count as income for Reasonably priced Care Act subsidies, so a big enough transaction could increase the premiums you pay.
A conversion permits you to transfer money from a daily IRA or 401(k), which can be taxable in retirement, to a Roth IRA, which can be tax free. When you expect to be in a better tax bracket in retirement, conversions could make sense — you’re paying income taxes on the lower rate now, relatively than the upper rate later. But obviously higher medical insurance premiums would offset a few of that profit.
A tax pro can enable you to model conversions of various sizes to see the impact on all of your funds, not only your tax bill. It’s possible that a partial conversion could enable you to benefit from the present downturn without dramatically increasing your medical insurance costs.
Social Security and divorce
Dear Liz: I used to be married for 25 years. More often than not, I used to be a full-time housewife and worked part time here and there. Social Security keeps telling me that I can’t collect on my ex’s Social Security until he dies. He’s 74 and I’m 72. I began collecting at 62 and don’t get that much in Social Security. Is it true that I even have to attend until he dies to get more?
Answer: Technically, you’re eligible for a divorced spousal profit that’s as much as 50% of your ex’s profit in case your marriage lasted at the very least 10 years and also you haven’t remarried. If that quantity is lower than your individual profit, though, you wouldn’t get anything extra.
The maths changes in case your ex should die. Then you definately can be eligible for a survivor’s profit that is the same as what he was receiving. If that quantity is larger than your individual profit, you’ll get the larger amount.
Switching back to original Medicare
Dear Liz: I’m 75 and I’ve been on an Advantage plan since I began on Medicare at 65. I’m considering switching to original Medicare with a supplemental policy. I do know I can have to enroll in a drug policy also. Will I be subject to any penalties for late enrollment for any of the three policies?
Answer: You won’t be subject to penalties but you can be subject to underwriting for the supplemental policy. Meaning the private insurance firms that supply these plans can deny you coverage or charge you more for preexisting conditions.
There are a couple of exceptions. Insurers can’t subject you to underwriting in case you’re still inside the first 12 months of getting a Medicare Advantage plan, for instance, or in case you move out of the plan’s service area. As well as, 4 states — Connecticut, Maine, Massachusetts and Latest York — require Medigap firms to supply coverage to all Medicare beneficiaries.
Start shopping around and ensure your application for a supplemental policy has been approved before canceling your current plan.
Medicare Part A
Dear Liz: You latterly answered a matter from someone who was delaying signing up for Medicare because he had medical insurance through his job. You mentioned that if the employer had 20 or more employees, he didn’t should join until that employment ended. That’s correct, but there’s typically no cost for Medicare Part A so there’s no reason not to enroll.
Answer: That’s a superb point. Medicare Part A covers hospital visits and typically is premium-free, so signing up at age 65 is an excellent idea even when you might have insurance coverage through work. The opposite parts of Medicare require monthly premiums and may impose penalties in case you don’t apply whenever you’re first eligible.
Liz Weston, Certified Financial Planner, is a private finance columnist for NerdWallet. Questions could also be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by utilizing the “Contact” form at asklizweston.com.