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Year-end tax strategies may affect how much retirees pay for Medicare


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Social Security beneficiaries are set to receive a 3.2% increase to their benefits in 2024 based on the annual cost-of-living adjustment, the Social Security Administration announced on Thursday.

The change will result in an estimated Social Security retirement benefit increase of more than $50 per month, on average. The average monthly retirement benefit for workers will be $1,907, up from $1,848 this year, according to the Social Security Administration.

But beneficiaries won’t know exactly how much of an increase they will see until December, when they receive their annual benefit statements, Mary Beth Franklin, a certified financial planner and Social Security expert, said Thursday during the CNBC Financial Advisor Summit.

More from Year-End Planning

Here’s a look at more coverage on what to do finance-wise as the end of the year approaches:

One factor that may offset those benefit increases is the size of Medicare Part B premiums, which are typically deducted directly from monthly Social Security checks.

“You will be getting a larger Social Security benefit next year,” Franklin said.

“But remember, depending on your income, you may also be paying a lot more for Medicare,” Franklin said.

Medicare Part B premiums are based on income

It is truly like a hurricane for your health care costs in retirement.

Mary Beth Franklin

CFP and Social Security expert

If your income goes up by even $1, you may be bumped up to a higher Medicare Part B premium tier and have to pay extra.

“It is truly like a hurricane for your health care costs in retirement,” Franklin said.

In 2024, the monthly Part B premiums will be based on information in 2022 federal tax returns.

Beneficiaries and their financial advisors would be wise to pay attention to how their incomes may change, and therefore affect Medicare Part B premium rates, when implementing three year-end tax strategies, Franklin said.

1. Roth conversions

A Roth conversion happens when pre-tax funds from a traditional IRA or an eligible qualified retirement plan like a 401(k) are moved to a post-tax retirement account.

While this triggers an immediate tax bill because that money is treated as income for the year, it frees up the possibility for tax-free retirement withdrawals later.

However, that extra income for this year may trigger higher Medicare Part B premiums later, Franklin warned.

“Advisors may want to reach out to their clients and say, ‘Remember, for long-term tax planning purposes, we did that Roth IRA conversion?” Franklin said. “‘Your Medicare premium may go up. But it might just be a one-year hit.'”

2. Tax loss harvesting

As the year ends, one popular strategy advisors may employ is tax loss harvesting, where some investments are sold at a loss to offset the capital gains owed on other profitable investments.

This strategy may help reduce adjusted gross income and future Medicare premiums, Franklin said.

3. Qualified charitable distributions

Retirees who are taking distributions from IRAs and who want to make charitable donations may want to consider making those contributions directly from their retirement accounts in what is known as a qualified charitable distribution.

“That money does not show up on your tax return, and will not boost your income taxes or your future Medicare premiums,” Franklin said.

Of note, even though required minimum distributions now start at age 73 (if you reach age 72 after Dec. 31, 2022), qualified charitable distributions are still available to retirees ages 70½ or older, Franklin noted.



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