Dear Liz: My wife and I are withdrawing an unusually large amount of money from our IRA for a 20% down payment on the construction of a new nursing home. Unfortunately, this withdrawal will cause your modified adjusted gross income to exceed the limit and increase your Medicare premiums in 2026. Is there a way to avoid this increase?
A: You have the right to appeal a premium increase, but typically for your appeal to be successful you must have experienced a decrease in income due to retirement, death of a spouse, divorce, etc. It is necessary. For example, temporary increases in income, such as large withdrawals from an IRA or capital gains from the sale of a home, generally do not qualify for relief.
As you know, Medicare’s Income-Related Monthly Adjustment Amount (IRMAA) adds a premium to your Part B and Part D premiums if your income exceeds a certain amount. In 2024, IRMAA kicks in when your modified adjusted gross income exceeds $103,000 for individuals or $206,000 for married couples filing jointly. There is a two-year lag between when you report your income and when IRMAA increases your premiums.
The good news is that this increase is not permanent. If your income returns to normal next year, your premiums will return to normal in 2027.
My ex-husband is delaying Social Security benefits. Will she have to wait too?
Dear Liz: I read your column about Social Security divorce spousal benefits. I got divorced on January 1st. My ex-husband will turn 65 next year and would like to defer benefits until he is 67. Will I have to wait until then to receive spousal benefits due to his decision?I will also be 65 next year. We have been married for 36 years.
A: If you are still married, you must wait until your husband files for Social Security to be eligible for spousal benefits. Since you are divorced, all you have to do is wait until he is eligible to apply for retirement benefits. (He qualified when he turned 62.)
However, that doesn’t mean you need to rush to apply. Starting benefits before you reach your own retirement age means accepting a permanent reduction in your check. Your benefits are also means-tested, with $1 of your benefits deducted for every $2 you earn above a certain limit ($22,320 in 2024).
Waiting until full retirement age means both the reduction and the means test are eliminated. If you were born in 1960, your full retirement age is 67 years old.
Distributing wealth into health savings accounts
Dear Liz: I have a family health savings account and am enrolled in a qualified high-deductible health insurance plan. Once my youngest child turns 26 and is no longer eligible for an insurance plan, the HSA will become my personal account. My husband is on Medicare and cannot contribute to an HSA. I’ve read that if I die before him, he can use my HSA for his own medical expenses. I can’t pay for his medical bills on his behalf, but can I use my HSA to pay for his medical bills?
A: Yes. Spouses can use HSA funds to pay for eligible medical expenses for their spouse or other dependents, said Mark Luscombe, principal analyst at Wolters Kluwer Tax & Accounting.
If you want the funds to go to your husband if you die first, you need to make him the designated beneficiary of the account. Otherwise, as I mentioned in last week’s column, the account could become taxable upon your death.
Click here to learn more about medical savings accounts and “death drawdowns”
Dear Liz: I read your column about HSA accounts. I was with you until the “deathbed drawdown.” I really hope you’re not thinking about your HSA when you’re nearing death. I would rather just pay taxes.
A: That’s certainly your prerogative, but financial planners point out that people with large HSA balances can avoid unnecessary tax bills if they keep good records.
HSAs offer three rare tax breaks. Contributions are tax deductible, growth in funds is tax deferred, and withdrawals are tax free for medical expenses. Additionally, because HSAs can be rolled over from year to year and invested for growth, some people accumulate large sums of money to supplement their retirement savings.
Fortunately, you don’t have to make a withdrawal in the year you incur an unreimbursed medical expense. As long as the expenses were incurred after the HSA was established and before your death, a tax-free withdrawal may be justified years or even decades later. People who keep good records of their unpaid medical bills can justify making last-minute withdrawals if needed.
Liz Weston, a Certified Financial Planner®, is a personal finance columnist. Questions can be directed to 3940 Laurel Canyon, No. 238, Studio City, CA 91604 or by using the “Contact” form at asklizweston.com.