Announcer:
It’s time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representatives, securities offered through Cambridge Investment Research Incorporated, a broker dealer, member FINRA, SIPC. Investment advisor representative, Cambridge Investment Research Advisors Incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now here’s today’s Financial Focus program.
Nate Kreinbrink:
Good morning and welcome to this week’s Financial Focus brought to you each and every Wednesday morning right here on KROS. Well, this is Nate Kreinbrink. I have Mike Steigerwald joining me today. Little flexibility, a little switcheroo today, huh?
Mike Steigerwald:
Yeah. Well, you might as well. You got to do it.
Nate Kreinbrink:
Got to do it. We have normally the third Wednesday of every month is kind of tailored towards taxes with either Andy Ferguson or Mike Van Zooten with the office, but they are at an IRS conference.
Mike Steigerwald:
Sounds fun.
Nate Kreinbrink:
Sounds amazing. So I am sure we are going to have content after content after content of when they get back as far as what the-
Mike Steigerwald:
Probably need to do a few weeks with Andy.
Nate Kreinbrink:
I remember last year, I guess, when they came back, Andy brought back this stack of papers that he had, and it was literally like an inch and a half thick. And he’s like, guess what this is? And I’m like, I don’t know, the tax code? And he’s like, no, those are just the changes to the current tax code that go into effect this year.
Mike Steigerwald:
Wow. He must be, he said he’s in San Diego this week, right?
Nate Kreinbrink:
Yes. He said he is in San Diego by location. He probably will not get out of the hotel because he’s there, but other than them telling him in the airport saying, San Diego.
Mike Steigerwald:
Surprised that conference isn’t two weeks long.
Nate Kreinbrink:
I know. So again, good stuff coming in. But again, with the new tax bill that went into effect July 4th and obviously some changes and what that entails, I’m sure this year will be no different with some of those new deductions, new laws, phase outs of old ones and how that’s going to pertail to it. But again, switching gears today, I know usually the fourth Wednesday that of every month though, we usually have yourself or Mike on to talk a little bit of Medicare.
And so I think today we’ll just kind of jump ahead a little bit and we’ll talk a little Medicare today because, again, we are getting close to that time period where a lot of people will start to beginning a lot of junk information in the mail. Again, whether you’re just turning 65 or you’re on a plan, and then, the reason is because we have the Medicare open enrollment period coming up here October 15th to December 7th. So again, making changes to certain plans that you have, drug plans, especially during that time period, that is the window to do it. So they want to get their information out to you. And again, you are probably being bombarded with it.
Mike Steigerwald:
Yeah. Just a few short weeks away from that. So what we look at is time to make some reviews if you’re already on Medicare. But knowing those plans and the details of the plans, we’ll find out more about those here in the coming weeks. So I think what we want to do today is maybe just walk through a couple real life examples, provide some context to some common mistakes that we might see when helping folks make decisions regarding Medicare.
Nate Kreinbrink:
Right. And I think, again, when you go into it, I mean we always joke around, but it’s real. I mean, you want to learn from other people’s mistakes and things that maybe have maybe been overlooked, maybe been forgotten, but then they go to make a decision and we’re like, oh yeah, we’ve got to make sure we do that. Or they’ve kind of had a realization that they maybe forgot about that or whatever. And the first thing is again, is looking at your spouse. It’s important to remember that Medicare is an individual coverage only. There is not a family policy for Medicare. There is not adding a spouse. There’s not adding kids. It is for individual policy only.
So if you are a married couple and the spouse that is carrying the coverage turns 65 and is going to transition into Medicare, and the other spouse is not yet 65, they do not get coverage through Medicare. They will have to go out and find their coverage, whether if they’re able to stay on the work plan, which is becoming very, very limited when those instances happen. They’re going to have to, one, probably go to the marketplace and get insurance. But when you transition to Medicare, that does not enroll your spouse into Medicare as well.
Mike Steigerwald:
Yeah. And that’s a big issue. And really what happens, Nate, is more times than not, what you want to find is the planning aspect of it can really help you make that decision. What we’ve seen is that all of a sudden there’s a two week window until that coverage will be lost. And I ran out of time to make a plan or make a decision to figure out what’s best for us. So I guess we’ll just do this because I didn’t have time to make a decision otherwise, do this, meaning I’ll take COBRA, fine, not really knowing what the cost is, not knowing what other options may be out there for you. And a lot of times there’s surprises with how much it might cost to keep the spouse, who was not the employee on the plan via COBRA
Nate Kreinbrink:
And so again, just continue to keep that in mind as you’re doing it, when you’re transitioning and you are married. Again, need to make sure we know what the spouse is doing for their coverage, again, before we make any of those decisions to it. And along those lines, when you are transitioning to it, and even along the lines of when you’re already on it, is understanding the IRMAA. And I think people hear that term and may have a vague idea with it. But the important thing to remember when you hear IRMAA, it’s basically looking at your income. And for simplicity sake, for the sake of today’s show, just understand that your Medicare premiums are tied to your income. So there’s five different tiers that you would fall into based off your income levels. The higher your income when you cross certain thresholds, you are going to pay more for the same Medicare coverage that you have for your drug plan, for your part B premium as far as what you have.
So it’s important when we talk about tax planning, when we talk about Roth conversions, when we talk about realizing gains, when we talk about all this different stuff, it’s important to remember that we still at the back end of this planning is we want to see where that falls into your income for Medicare purposes. When they look at that, it’s a two-year look back. So essentially people that are on Medicare today are looking at what they made in 2023 to determine what they are paying for their premiums today.
And the reason that is is because at the beginning of the year, January 1st, two years ago is the last full year tax return that they have on file in order to know what to charge you January 1st because you don’t have last year’s tax return done on January 1st because you have up until the tax deadline to do that. So that’s why the two-year look back falls in place. So again, decisions today, again, may not impact you tomorrow, but again, two years from now when you look at what they will, that is the income they’re going to use. So you want to make sure that everything that you’re doing falls into that and you have an idea of where that falls into it.
Mike Steigerwald:
Yeah. So the big takeaway with that, Nate, is that there are options for you. Knowing those things ahead of time can certainly help make decisions. You mentioned realizing gains. Well, does it make sense to make that sale or make that transaction and realize those gains in this calendar year? Or can it be split over multiple years to help avoid some of those IRMAA charges?
Nate Kreinbrink:
Right. So again, all things to consider when you’re doing it. And then when you look at choosing your Medicare coverage, whether it’s going through a supplement and a drug plan, whether it’s going through a Medicare Advantage plan, it’s not necessarily the best practice, I guess you would say, to just choose your coverage based off of premium slash price alone. Because, again, it’s tough not to because you want to look at it and be like, how can I get the coverage for the cheapest price?
Mike Steigerwald:
And trust me, all of the companies, all the carriers are very, very good at making their plan seem like it is the best plan.
Nate Kreinbrink:
Right. Again, so Medicare Advantage, for instance, there may be very little, if any, monthly premium when you sign up for a Medicare Advantage plan, which sounds great. Why should I pay for it, if I’m not going to use it? But when you drive into the details and you’re going to need that coverage as far as the max out of pocket that you would pay, the networks that come into Advantage plans when you want to look at it, again, you start again, it’s the old pendulum thing, like weighing the pros and cons of each way, not just today, but going forward, that’s where I think people need to be aware of, that it’s a long-term commitment, and yes, you may have options to change, but those options to change may not be as smooth or as slick as what you think they are. So again, when you’re making those decisions, don’t just look at price and don’t just look at today.
Mike Steigerwald:
Absolutely the case. The most important takeaway there is realizing that it’s current and future coverage.
Nate Kreinbrink:
Right.
Mike Steigerwald:
That’s the big thing. So knowing that, it can be very attractive to say, zero monthly premium, I’m going to save money because I don’t have to pay a monthly premium for my coverage other than my part B, not always the case.
Nate Kreinbrink:
So when you look at it’s just understanding the different ones. And again, if you go with the supplement route, okay, what is the premium today? But again, they’re able to raise those premiums every year, and a lot of them are age-based pricing. So if you’re 65, when you turn 66, you’re going to pay a little more. When you’re 67, you’re going to pay more. A few of them are community-based, but most of them are age-based, so you kind of factor that in when you’re looking at the pricing for those. And then lastly with those is drug plans and making sure that people have the right drug plan for them. Again, it comes down to what you’re paying premium wise, what you’re paying for out of pocket, and then for each drug that you have and those change as well.
Mike Steigerwald:
Yep. So the big takeaway with the drug plan and deciding which drug plan is best is to figure out what are the prescriptions that I’m taking, and do certain plans cover those prescriptions better than others, even if that plan may charge a monthly premium?
Nate Kreinbrink:
Right.
Mike Steigerwald:
Even if you’re paying the premium, if you get better coverage, you’re going to pay less overall out of pocket, including the cost of the drugs and your premium.
Nate Kreinbrink:
So again, you got questions on this. It’s very confusing. We joke, it’s alphabet soup. It’s all this stuff that goes into it, but overwhelming to the masses. And so if you have questions, give us a call. We’d be happy to just kind of try to simplify some of the complicated terms and nature that Medicare is currently. So give us a call, we’d be happy to help. But did want to mention before we run out of time that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of September will be donated to the Skyline Center here in Clinton. So again, Mike, appreciate you joining me today.
Mike Steigerwald:
Of course.
Nate Kreinbrink:
Pinch-hitting, filling in. Again, Nate and Mike, bringing you this week’s Financial Focus. Thanks for tuning in and have a great rest of your week.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representatives, securities offered through Cambridge Investment Research Incorporated, a broker dealer, member FINRA, SIPC. Investment advisor representative, Cambridge Investment Research Advisors Incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.NelsonCorp.