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Q&A: Avoiding Medicare sign-up penalties

September 16, 2019 By Liz Weston

Dear Liz: Someone recently asked you if signing up for Medicare is mandatory. Your answer implied no, one does not have to sign up at 65. However, it is my understanding that if a person does not enroll when first eligible, they will be hit with large penalties on their Medicare premiums if they sign up later. Am I missing something?

Answer: Not at all. That answer was too short and should have mentioned the potentially large, permanent penalties most people face if they fail to sign up for Medicare Part B and Part D on time.

To review: Medicare is the government-run healthcare system for people 65 and older. Part A, which covers hospital care, is free. Medicare Part B, which covers doctor’s visits, and Part D, which covers prescriptions, typically require people to pay premiums. Many people also buy Medigap policies to cover what Medicare doesn’t, or opt for Medicare Part C. Part C, also known as Medicare Advantage, is an all-in-one option that includes everything covered by Part A and Part B and may include other benefits.

There’s a seven-month initial enrollment period that includes the month you turn 65 as well as the three months before and three months after.

People who don’t sign up when they’re first eligible for Part B usually face a penalty that increases their monthly cost by 10% of the standard premium for each full 12-month period they delay. For Part D, the penalty is 1% of the “national base beneficiary premium” ($33.19 in 2019) times the number of full months the person was uncovered.

People who fail to enroll on time also could be stuck without insurance for several months because they may have to wait until the general enrollment period (Jan. 1 to March 31) to enroll.

People typically can avoid these penalties if they have qualifying healthcare coverage through a union or an employer (their own or a spouse’s). When that coverage ends, though, they must sign up within eight months or face the penalties. Also, they might not avoid the penalties if their employer-provided coverage becomes secondary to Medicare at 65, which can happen if the company employs fewer than 20 workers. Anyone counting on union or employer coverage to avoid penalties should check with the company’s human resources department and with Medicare to make sure they’re covered.

The original letter writer had no income to pay Medicare premiums, so the answer also should have included the information that Medicaid — the government healthcare program for the poor — might help pay the premiums. People in this situation should contact the Medicaid office in their state. (Medicaid is known as Medi-Cal in California.)

Filed Under: Medicare, Q&A Tagged With: follow up, Medicare, penalties, q&a, Social Security

Q&A: Avoid this big mistake when paying off debt

September 9, 2019 By Liz Weston

Dear Liz: I am 49, single, with no kids. Until about three years ago, I wasn’t even sure how much credit card debt I had. I had less than $200 in savings and I was just plugging along making minimum payments. It turns out I had over $14,000 in credit card debt and $12,000 in student loan debt. The credit card debt was accumulated not from extravagant purchases but rather from living in an expensive city and trying to pursue a dream career. (I worked only three days a week in my “day job” for about 12 years.)

My living expenses have always been modest, but I made a budget, lived even more frugally, and made large monthly payments. In the process I also cashed out my small 401(k), as I have done a couple of times previously. Fast-forward to now — my credit card debt is paid off, my student loan is paid off, I have about five months of living expenses in savings and a reasonable annual income of $60,000. I have no retirement savings, though. What is my next best step to get money accumulating for my old age?

Answer: You’re to be congratulated for taking charge of your financial life, but it’s unfortunate you sacrificed your 401(k) to do so. It rarely makes sense to cash out retirement funds to pay debt. The interest you saved is typically far outweighed by the taxes, penalties and lost future tax-deferred returns you incurred by tapping your 401(k) prematurely.

Fortunately, the budgeting skills you learned will come in handy now that you’re focused on saving for retirement. Continue to make large monthly payments, but direct the money into your 401(k) if you still have one or an IRA if you don’t. If you max out your tax-deductible options, you can continue to put money into a taxable brokerage account.

You should plan to continue working as long as possible and to delay starting Social Security, preferably until your benefit maxes out at age 70. Social Security is likely to be your largest source of income, so the bigger your check, the more comfortable your ultimate retirement will be.

Also, take steps to protect and enhance your biggest current asset — your ability to earn money. Many people are derailed financially in their 50s by unexpected layoffs and health problems. You can improve your chances of being able to earn well into your 60s by taking good care of yourself, investing in new skills and trying to be a top performer at work.

Filed Under: Q&A, Retirement, Saving Money Tagged With: 401(k), Q&A. retirement, retirement savings

Q&A: Redirecting a 529 college savings plan

September 9, 2019 By Liz Weston

Dear Liz: Years ago when my children were young, we established 529 college savings plans for them. Unfortunately, both children ended up in the wrong crowds and never entered college. We still have the funds. What are our options? We do have a grandson now; would it be possible to change the beneficiary?

Answer: Yes. You can change a 529 plan’s beneficiary without triggering a tax bill as long as the new beneficiary is a “qualifying family member.” By the IRS’ definition, that includes the original beneficiary’s child or other descendant. (Qualifying family members also include spouses and siblings, parents, in-laws, uncles, aunts, nieces, nephews and cousins.)

Filed Under: College Savings Tagged With: 529 savings plan, q&a

Q&A: Signing up for Medicare

September 9, 2019 By Liz Weston

Dear Liz: Is it mandatory to sign up for Medicare at age 65, and how is it paid for? I’m 64, don’t have any assets and I’m not working (I’m living with a friend for free). I’d like to wait until 70 to collect Social Security. Is that possible? Someone just told me that I have to sign up for Medicare, and to pay for it, I have to sign up for Social Security. Is that true?

Answer: No.

You’re not required to get Medicare at 65. You should, however, at least sign up for Medicare Part A. Part A is the portion of Medicare that’s free and covers hospital visits. You sign up for Medicare through Social Security, either online or in a Social Security office, but you don’t have to start your Social Security benefit to do so.

The other parts of Medicare — Part B, which covers doctor’s visits, and Part D, which covers prescription drugs — require paying premiums, but you can pay those without signing up for Social Security. Some people are confused about this, because most people who get Medicare have those premiums deducted from their Social Security checks. But that’s not required.

Filed Under: Medicare, Q&A, Social Security Tagged With: q&a, Social Security

Q&A: Social Security spousal benefits

September 3, 2019 By Liz Weston

Dear Liz: I’m confused by Social Security benefits for divorced spouses, which you’ve written about recently. I was told that because I remarried (after age 60), I have to wait until my ex-husband died before receiving a part of his benefits. Is this still true for remarried ex-spouses? My ex does collect Social Security and I collect my small benefit (both of us started at full retirement age).

Answer: Yes. Divorced spousal benefits would be available only if you are currently unmarried. Survivor benefits, on the other hand, could still be available if you remarried at 60 or older.

Spousal and divorced spousal benefits can be up to 50% of the worker’s benefit, while survivor and divorced survivor benefits can be up to 100%.

Filed Under: Q&A, Social Security Tagged With: q&a, Social Security, spousal benefits

Q&A: Unloading a timeshare

September 3, 2019 By Liz Weston

Dear Liz: How can a timeshare owner get rid of the timeshare and claim the loss on taxes?

Answer: Timeshares typically are considered a personal asset, like a boat or a car, so the losses aren’t deductible. The best way out of a timeshare is often to give it back to the developer, if the developer will take it. You also could try to sell it on sites such as RedWeek and Timeshare Users Group. Unless your timeshare is at a high-end property, you are unlikely to recoup much and may have to pay the buyer’s maintenance fees for a year or two as an incentive.

Filed Under: Q&A, Taxes Tagged With: q&a, Taxes, timeshare

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