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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: 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

Q&A: Strategies for overcoming a spouse’s bad investment decisions

September 3, 2019 By Liz Weston

Dear Liz: I tell people we lost a huge chunk of money in the Great Recession, but it wasn’t the downturn that did us in. My husband made some incredibly poor choices. I’m embarrassed to admit that he absolutely refused to listen to me and stop the financial self-destruction until I grew a backbone. I told him I’d divorce him unless he stopped. He has mended his ways and we’re still together (which is really for the best; we’ve been married almost 47 years).

He’s now being very transparent and prudent about investing, but we’re still looking at an underfunded retirement and I’d like to maximize what we have. We’re both 71 and still working (we’re self employed). Our home is worth about $800,000 and we owe $160,000. We have a rental nearby with about $100,000 in equity that pays for itself, but there’s no extra income from it. We have $210,000 in investments and $25,000 in savings with no debt.

I think more real estate would be a good investment vehicle for us, but we’d have to cash out some of our limited portfolio in order to purchase more. So instead, I make an extra principal payment equal to half the regular mortgage payment on each of the properties each month. I’m not sure if that’s the wisest thing to do, but I figure it’s still investing in real estate and will help us when we finally retire, sell and downsize.

Answer: Right now, the vast majority of your wealth is tied up in two properties in the same geographic area. A financial planner would want you to diversify, not double down by putting even more money into real estate.

And a fee-only financial planner is what you need to help you map out your future while easing the investment reins out of your husband’s hands. As we get older, we’re more vulnerable to fraud, exploitation and just plain bad choices. Your husband may have been scared straight for now, but he easily could make future decisions that could again imperil your finances. That’s especially true if his prior behavior was related to a gambling addiction. Not all problem gamblers choose casinos or horse tracks; some are day traders.

Given all that, you may want to consider purchasing a single premium immediate annuity when you retire. These annuities offer a guaranteed stream of income for life, in exchange for a lump sum. This would be income that can’t be lost to stock market downturns, real estate recessions, bad investments or fraud.

That’s something to discuss with your planner, along with ways you can use your businesses to maximize your retirement savings. (The self employed have many options, including a basic Simplified Employee Pension or SEP, solo 401(k) plans and traditional defined benefit pension plans.)

You can get referrals to fee-only planners at the National Assn. of Personal Financial Advisors, the XY Planning Network, the Alliance of Comprehensive Planners and the Garrett Planning Network.

Filed Under: Investing, Q&A, Retirement Tagged With: Investments, q&a, Retirement

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