Dear Liz: My wife and I plan to withdraw a larger amount than usual from our IRA to make a 20% down payment on our new retirement home. Unfortunately, this withdrawal will put our modified adjusted gross income over the limit, which will result in an increase in Medicare premiums in 2026. Is there any way to avoid this increase?
A: You have the right to challenge a premium increase, but in order for your challenge to be successful, you must have experienced a reduction in your income due to retirement, death of a spouse, divorce, etc. A temporary increase in your income, such as a large withdrawal from an IRA or capital gains on the sale of a home, generally does not qualify for a reduction.
As you may know, Medicare’s Income-Driven Monthly Adjustment Amount (IRMAA) adds an additional charge to your Part B and Part D premiums when your income exceeds a certain amount. In 2024, the IRMAA kicks in when your modified adjusted gross income exceeds $103,000 for individuals and $206,000 for married couples filing jointly. There is a two-year delay between when you report your income and when the IRMAA increases your premiums.
The good news is that this increase isn’t permanent: If your income returns to normal next year, your premiums for 2027 will also return to normal.
My ex-husband is delaying receiving his Social Security benefits. Does my wife have to wait too?
Dear Liz: I read your column about Social Security benefits for divorced spouses. I got divorced on January 1. My ex-husband turns 65 next year and wants to defer his benefits until he turns 67. Will his decision mean I have to wait until then to get my spousal benefits? I will also be turning 65 next year. We were married for 36 years.
Answer: If you were still married, you would have to wait until your husband files for Social Security to qualify for spousal benefits. Since you’re divorced, you only have to wait until your husband is eligible to file for retirement benefits (he became eligible when he turned 62).
But there’s no need to rush to apply. Starting benefits before your full retirement age means you’ll get a permanently reduced check. Benefits are also subject to an earnings test, which means $1 is deducted from your benefit for every $2 you earn over a certain limit: $22,320 in 2024.
Waiting until full retirement age means you eliminate both the reduction and the earnings test. If you were born in 1960, your full retirement age is 67.
Distributing wealth with health savings accounts
Dear Liz: I have a Family Health Savings Account with a qualified high-deductible health insurance plan. The HSA will become my personal account once my youngest child turns 26 and is no longer eligible for the plan. My husband is on Medicare, so I cannot contribute to the HSA. I read that if I die before my husband, he can use my HSA for his own medical expenses. I can’t contribute on his behalf, but can I use the HSA now to pay for his medical expenses?
Answer: Yes, spouses can use HSA funds for qualified medical expenses for their spouse and other dependents, according to Mark Luscombe, principal analyst at Wolters Kluwer Tax & Accounting.
If you want to pass the funds on to your husband if you die first, you’ll need to name him as the account’s beneficiary, or, as I noted in last week’s column, the account could become taxable upon your death.
More about Health Savings Accounts and “Deathbed Withdrawals”
Dear Liz: I read your column on HSA accounts. I was with you right up to the “deathbed withdrawal” thing. I really hope I’m not thinking about my HSA when I’m nearing death. I’d rather pay the taxes.
Answer: That’s certainly your right, but financial planners point out that by keeping good records, people with large HSA balances may be able to avoid unnecessary tax bills.
HSAs offer an unusual triple tax benefit: Contributions are tax deductible, funds grow tax deferred, and withdrawals are tax-free if used for qualified medical expenses. Plus, because HSAs can be rolled over and invested to grow from year to year, some people use them to put away large sums of money as a supplement to their retirement savings.
The good news is that you don’t have to withdraw unreimbursed medical expenses in the year they’re incurred. You can withdraw them tax-free years or even decades later, as long as the expenses were incurred after you set up your HSA and before you died. People who keep good records of unreimbursed medical expenses can make last-minute withdrawals if necessary.
Liz Weston is a Certified Financial Planner® and personal finance columnist. Send your questions to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604 or use the “Contact Us” form at asklizweston.com.
