The segment of Medicare beneficiaries who are 70 ½ years of age or older and who are subject to both required minimum distributions from their retirement accounts and Medicare premium surcharges can reduce both income taxes and Medicare premiums with a Qualified Charitable Distribution (QCD).
Individuals whose modified adjusted gross income (MAGI) exceeds $85,000 and married couples whose MAGI exceeds $170,000 pay higher premiums for both Medicare Part B, which covers doctor visits and outpatient services, and Medicare Part D, which covers prescription drug costs. MAGI encompasses all income including tax-exempt interest.
The standard monthly Medicare premium in 2017 is $134. There are five income tiers and if your MAGI exceeds an income bracket by just $1, you are catapulted into the next tier and will pay a higher surcharge. Medicare premiums are based on the latest available tax return, so 2017 premiums are based on 2015 tax returns that were filed last year. In 2017, monthly premiums that include high-income surcharges for Medicare Part B range from $187.50 to $428.60!
Beginning in 2016, a provision that had previously been extended on a temporary year-to-year basis was made permanent. That provision allows taxpayers 70 ½ years of age and older to directly contribute up to $100,000 from an IRA to a qualifying charity without recognizing the contribution as income. A qualified charitable distribution (QCD) counts toward satisfying the donor’s required minimum distribution.
By excluding IRA distributions that satisfy the requirements of QCDs from income, the taxpayer/donor reduces MAGI and may minimize Medicare premium surcharges.
Here’s an example….An individual with MAGI that puts him/her $500 into Medicare Tier II will pay an extra $54.50 per month for a total Medicare Part B premium of $187.50 per month. By donating $1,000 directly from an IRA to a charity, that individual would remain in Tier I and not be subject to the surcharge.
Please remember that the 2016 tax returns that you file this year will determine 2018 Medicare premiums. But, Medicare premiums in 2019 can be impacted by actions that you take in 2017.
For more information download the most recent (January 2016) Social Security publication “Medicare Premiums: Rules for Higher-Income Beneficiaries”.
–Marjorie Fox, Partner and Senior Advisor