Ask Liz Weston

Get smart with your money

Q&A

Q&A: Why Shopping for the Right Medicare Plan Matters

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Dear Liz: In the past, you’ve discussed the pros and cons of Medicare Advantage plans versus original Medicare. There is one more point I think you need to tell readers, and that is the high cost of Part D prescription drug coverage for people who choose original Medicare. For example, if you need just a few expensive drugs that are Tier 3 or higher, coupled with the monthly premium, you can easily pay $3,000 a year or more. I am not saying original Medicare is bad. On the contrary, it gives you great freedom of health choice. However, Part D is expensive.

Answer: Let’s start with the news that in 2025, Medicare Part D will have a $2,000 out-of-pocket maximum. The cap applies to Part D plans purchased by people on original Medicare as well as to Medicare Advantage plans that have prescription drug coverage. Once you hit the limit, you won’t have to pay more for covered drugs for the rest of the year.

Note the phrase “covered drugs.” Prescription drug coverage is provided by private insurers, and their lists of covered prescriptions can change every year. An insurance plan that covers a drug this year may not cover it next year, so every year during Medicare’s open enrollment — which ends Dec. 7 — you should be shopping to make sure your plan provides the coverage you need. If you don’t comparison-shop during the annual open enrollment period, you can wind up paying substantially more than you expected.

As background, Medicare Advantage plans are provided by private insurers as an alternative to original Medicare. Whereas original Medicare allows you to choose any doctor who accepts Medicare — and the vast majority do — Medicare Advantage has provider networks and may not cover care outside those networks, or may charge more. Also, Medicare Advantage networks and benefits can change from year to year.

Fortunately, Medicare offers a comparison tool to help you sort through your options. Entering the drugs you take and your preferred pharmacy can help you select the best plan for your circumstances. Now’s the time to compare and switch plans if necessary.

Q&A: Navigating the maze of government assistance for an adult child

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Dear Liz: I have a daughter who is 21 and a single mother with a 1-year-old. She has been diagnosed with borderline personality disorder and major depressive disorder. She hasn’t worked since high school and can’t hold a job. She is no longer a dependent as of this year. My question is what assistance is she eligible to apply for? She already is with WIC and getting benefits for the baby. She’s a mess and I’m having difficulty understanding what she can apply for, and what is realistic in terms of Supplemental Security Income, disability, housing assistance and so on.

Answer: Government benefits can be a nightmarish maze to navigate, but you and your daughter may be able to find your first guide in the WIC program. WIC — which is formally the Special Supplemental Nutrition Program for Women, Infants, and Children — provides low-income women and children with supplemental food and nutrition counseling. WIC also provides screening and referral to other benefit programs that could help your daughter and grandchild.

Another resource is the benefits finder tool at USAGov, the official site of the federal government. Start at https://www.usa.gov/benefit-finder.

You didn’t mention health insurance, but making sure your daughter and her child have coverage is crucial. With medication and counseling, your daughter could stabilize enough to become employable and start to build her young life. Under the Affordable Care Act, she can continue on your health insurance until age 26 even if she’s not a dependent for tax purposes. Otherwise, check the health exchanges at https://www.healthcare.gov/. Please act quickly, as open enrollment ends Dec. 15.

Inheriting stocks after a parent’s death resets the cost basis

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Dear Liz: I am a beneficiary of my father’s brokerage account. Upon his death, the brokerage company closed his account and transferred all of the equities to me in a new account. How will I know the cost basis for capital gains purposes when I sell the stocks?

Answer: You will use the value of the stocks on the day of your father’s death as the new tax basis. This is known as a “step up” in basis, since typically the fair market value at death is higher than the original basis, or what your dad paid for the stocks. Any appreciation that occurred during his lifetime won’t be taxed, but you would be subject to capital gains tax on any appreciation that occurs after that date.

Which Social Security benefit? It depends.

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Dear Liz: I am 61 and retired. My husband recently died at age 61 and he was still working at the time of his death. He’s always made more money than I did. I’ve been told that I can start getting Social Security after I turn 62 and when I turn 67 I can apply for survivor benefits. Is this correct?

Answer: You can start survivor benefits as early as age 60 and retirement benefits as early as age 62. Most people should delay their applications for Social Security benefits, because an early start typically means a smaller lifetime payout. You’re one of the exceptions since you’re allowed to switch between survivor benefits and your own.

Because the survivor benefit is much larger than your own, you’ll want to maximize your payout by not taking it early. That means waiting to start until your full retirement age. You can start your own benefit at 62 and switch to survivor benefits at 67.

An early start means being subject to the earnings test until full retirement age. If you’re not working, though, that’s a moot point.

Social Security is complicated and the right claiming strategy depends on the details of an individual’s situation. Consider using one of the paid Social Security claiming strategy sites, such as Maximize My Social Security or Social Security Solutions, to find the best approach.

Does this church pastor need to confess to the IRS?

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Dear Liz: As a recent member of our church board, I just discovered our church hasn’t been paying Social Security or Medicare taxes for our pastor. I checked with our pastor and he hasn’t been making any payments either. This has been going on for six years. How do we recover?

Answer: Clergy are generally exempt from having Social Security and Medicare taxes withheld from their wages, notes Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. However, clergy typically must pay self-employment taxes, which include Social Security and Medicare, unless an exemption has been approved by the IRS.

Normally, employers and employees each pay 7.65% of the employee’s wages to cover Social Security and Medicare taxes. Self-employed people typically must pay both the employer and employee shares, or a total of 15.3%.

If your pastor has been filing taxes as a self-employed person, then he probably has been paying the appropriate Social Security and Medicare taxes. If he hasn’t, however, he may owe a substantial tax bill and should consider hiring a tax pro to help him amend his returns.