Medicare Part B covers doctors’ fees. The basic Medicare Part B monthly premium will be $148.50 in January 2021. However, many high-earning seniors do not realize that their Medicare Part B premiums will be higher than that – in some cases, dramatically so. For example, for a married couple in the highest-earning category, each spouse will pay $504.90 per month in 2021. Additionally, high earners are subject to a monthly surcharge for Medicare Part D, the plan that covers prescription drugs.
Our office gets calls from time to time from dismayed clients who, unaware of the relationship between Medicare premiums and income, find themselves facing unexpected, steep premium hikes. It is essential for you to be aware of the relationship between your premiums and income as you make financial decisions, because any influx of income could unfavorably affect what you will have to pay for Medicare Part B and Medicare Part D coverage.
Premiums/Surcharges For High Earners In 2021
For Medicare purposes, premiums are based on adjusted gross income as reported in your tax return filed two years earlier. Thus, your premium for 2021 is based on your reported earnings for 2019. Here are the 2021 premiums adjusted for high earners’ income category:
2021 Medicare Part B Premium & Part D Surcharge – JOINT FILERS
| 2019 Modified Adjusted Gross Income | 2021 Part B Premium/Month | 2021 Part D Surcharge/Month |
| More than $176,000, not over $222,000 | $207.90 | $12.30 |
| More than $222,000, not over $276,000 | $297.00 | $31.80 |
| More than $276,000, not over $330,000 | $386.10 | $51.20 |
| More than $330,000, not over $749,999 | $475.20 | $70.70 |
| More than $749,999 | $504.90 | $77.10 |
2021 Medicare Part B Premium & Part D Surcharge – SINGLE FILERS
| 2019 Modified Adjusted Gross Income | 2021 Part B Premium/Month | 2021 Part D Surcharge/Month |
| More than $88,000, not over $111,000 | $207.90 | $12.30 |
| More than $111,000, not over $138,000 | $297.00 | $31.80 |
| More than $138,000, not over $165,000 | $386.10 | $51.20 |
| More than $165,000, not over $499,999 | $475.20 | $70.70 |
| More than $499,999 | $504.90 | $77.10 |
How Your Financial Decisions May Raise Medicare Premiums
Some financial strategies may have a negative impact on your Medicare premiums, despite those strategies being sound in other respects. Even if you are well aware of negative income tax consequences a certain strategy may create, you should also be aware of whether it could create Medicare premium hikes in two years’ time. Here are some examples:
Traditional (non-Roth) IRA, 401k or 403b
Before you consider taking more than the required minimum distribution, think about whether the additional funds will affect your adjusted gross income and therefore, Medicare premiums.
Tax-Deferred Annuities
If you cash in a tax-deferred annuity, the funds are not considered capital gains. The appreciation is considered ordinary income. This is true even if it is a variable annuity invested in mutual funds.
If you annuitize it, some portion of what you receive each month will be treated as ordinary income. If you take a withdrawal from your annuity, the withdrawal is considered to be income. Not until you withdraw all the accumulated income will the principal (not income) be deemed withdrawn.
Investments
For your investments portfolio, you may want to consider adding, or converting to, investments that generate tax-exempt income. Municipal bonds are an example of such an investment. You may also want to look into other investments that are more growth-oriented than income-oriented.
Everyone has unique financial goals and concerns. It follows that these decisions must be made within the context of your overall personal financial plan. Talk to your accountant and/or your financial advisor. If you do not have a financial advisor currently, contact The Karp Law Firm and we can provide you with some referrals.
