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How retirement savings can affect Medicare costs

Industry News | Aug 31, 2016



From the moment you start working, saving for the future becomes a top priority.

Not only do you have to plan for retirement, but you also have to think about your children's future. While you might feel your budget stretched thin, if you're fortunate enough to work for an employer that offers a matching 401(k) program, saving is made even easier.

But a 401(k) isn't the only tool available for retirement savings. You can also set up and maintain an Individual Retirement Account. Whether you have a standard or Roth IRA, these accounts are where you'll pull money from once you reach a certain age.

However, once you're eligible to start taking money from your IRA accounts, your Medicare coverage can also be affected. Before mandatory withdrawals begin, it's in your best interest to find out exactly how Medicare and an IRA interact with each other.

IRAs and Medicare

Once you reach 59 ½ years old, you can start taking money from your IRAs. You're not required to do so by any means, but the option is available. However, there are some exceptions if you need to dip into the account earlier. Medical expenses, disability that leaves you unable to work or terminal illness are three of those exceptions.

"Once you reach 59 ½ years old, you can start taking money from your IRAs."

However, once you turn 70 ½ years of age, the two accounts start to differ. According to the IRS, once you hit this age and have a traditional IRA, you must take out required minimum distributions. This amount is determined by taking your IRA balance as of Dec. 31 of the last year and dividing it by your life expectancy or a relevant distribution period. Roth IRAs do not have RMDs.

Once you start withdrawing money, there's a good chance your Medicare premiums will subsequently be affected. As U.S. News & World Report stated, Part B premiums are those most likely to increase in cost.

For example, if your income is greater than $85,000, you can expect to pay more for coverage and prescription drug coverage. If you file taxes jointly with your partner and the combined income is greater than $170,000, premiums and drug coverage will also increase. The income level is usually calculated from tax information from two years ago.

Roth IRAs and Medicare

Even though Roth IRA accounts do not have RMDs, they can still affect your Medicare coverage.

When you have a traditional IRA, you have the option to convert it to a Roth account. Doing so can help you avoid tax-free withdrawals. However, a conversion can increase Medicare premiums.

According to Financial Web, a Roth conversion means you have increased your taxable income. This then leads to an increase in Part B premiums. Depending on the size of the Roth conversion, costs could reach the thousands of dollars.

There are many decisions you have to make regarding your health and finances later in life. How you handle your IRA accounts can have an affect on Medicare premium prices.