How to Avoid Paying Penalties for Medicare Part B and Part D

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The ins and outs of Medicare can be confusing. The different types of coverage, Medicare Advantage versus Medicare Supplement, and parts that seem to extend from A to Z all make it a rather daunting subject.

On top of all that, there are penalties for failing to get adequate coverage or for not enrolling on time. Today, we’re going to sort through all that so you can avoid paying Medicare late penalties.

How to Avoid Medicare Late Penalties: Parts B and D

Medicare enrollment comes with a lot of deadlines and timelines paired with penalties and taxes if you miss these. Don’t let the term ‘penalty’ scare you away from learning about creditable coverage.

Medicare Enrollment:

If you are eligible for Medicare and choose not to sign up, you will face late penalties if you later choose to enroll; these penalties will apply to the entire period during which you were eligible for but not enrolled in Medicare. Importantly, these penalties are for life.

To avoid paying these late penalties, you’ll want to enroll in Medicare during your Initial Enrollment Period or Special Enrollment Period. We discussed these enrollment periods in more detail in an earlier blog, which you can find here.

For those of you who are already collecting Social Security when you become eligible for Medicare, you will be automatically enrolled in Medicare Parts A and B, thus avoiding any late penalties for these. You may, however, face a late penalty for Part D if you fail to enroll at that time.

There are some cases where you might be automatically enrolled in Medicare Part D, but these are less common.

Should I Delay Medicare Enrollment?

Many of you may delay your enrollment for good reason — you still have coverage from an employer or a spouse’s employer. If this is the case, you will not face penalties for delayed enrollment (as long as you have creditable coverage). If you lose this coverage, you will have to enroll in Medicare during the Special Enrollment Period to avoid penalties.

Non-creditable coverage is, in effect, no coverage when it comes to Medicare. And not all “good” coverage is creditable — sometimes even expensive policies from large employers — so you will want to check with your health insurance provider before delaying enrollment in Medicare. Additionally, employers with fewer than 20 employees typically do not offer creditable coverage.

While creditable coverage is typically only discussed in reference to Part D, it also applies to Parts A and B.

Missing your enrollment period or failing to have creditable coverage does not prevent you from later enrolling in Medicare; you will, however, have to pay late enrollment penalties.

Listen to learn more about Medicare late penalties:

Medicare Part B Late Penalty:

Medicare Part B covers things like medically necessary services and preventative services.

The standard premium for Medicare Part B in 2021 is $148.50. Your premium will be higher if you make over a certain amount of money each year; this extra tax is known as IRMAA, a subject we covered in a recent blog.

For Part B, there is a 10% increase in the standard monthly premium per year without coverage. In other words, for every year you are eligible for Part B and do not sign up, there will be a 10% increase in your premium.

For example, with a standard monthly premium of $148.50 for 2021, delaying your enrollment for 12 months while having no other creditable coverage, would mean a penalty of $14.85 per month. That means you’re paying an extra $14.85 each month — on top of your premium — once you eventually enroll in Part B.

Medicare Part D Late Penalty:

Medicare Part D is essentially prescription drug coverage. Part D Plans can cover the medications not otherwise covered under Medicare Part A and Part B.

The late penalty for Part D is 1% of the “national base beneficiary premium” ($33.06) for every full month you go without coverage — either a Part D plan or alternative creditable coverage, which we covered above.

For example, if you delay enrollment in Part D for 27 months, you will face a 27% penalty; for a national base beneficiary premium of $33.06, this will mean a penalty of $8.90 each month (the monthly penalty is always rounded to the nearest $0.10, so $8.93 becomes $8.90).

There’s a lot to consider when enrolling in Medicare: Which parts should I enroll in? When do I need to enroll? Is my coverage creditable?

Many people don’t realize that these penalties are for life, and they can get quite expensive. With so much at stake, you’ll want the right information when making your choice. From finding the best plan to avoiding those pesky late penalties, Cardinal’s got you covered.

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How to Avoid Paying Penalties for Medicare Part B and Part D

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Understanding the Upcoming 2026 Income Tax Increase: What You Need to Know

A Brief History of the Tax Cuts and Jobs Act (TCJA)

In today’s Cardinal lesson, we’re discussing the significant changes coming to income tax rates in 2026. This isn’t a proposal but a law already set in motion. The Tax Cuts and Jobs Act (TCJA), passed in 2017 and effective from January 1, 2018, brought about substantial reductions in income taxes. However, these reductions were only funded for eight years, meaning they will expire at the end of 2025.

What Changes to Expect in 2026

As of January 1, 2026, the tax rates will revert to their 2017 levels, adjusted for inflation. Key changes include:

  • The 12% bracket will increase to 15%.
  • The 22% bracket will rise to 25%.
  • The top rate of 37% will revert to 39.6%.

Not Just a Proposal

It’s crucial to understand that this change is already the law. Many people mistakenly believe that the tax rate increases are still under discussion. However, unless Congress enacts new legislation, these higher rates will take effect as scheduled.

Implications for Your Financial Planning

Impact on IRAs and 401(k)s

With the current lower tax rates, now is the time to consider strategies like Roth conversions. By converting funds from a traditional IRA to a Roth IRA now, you can potentially save a significant amount in taxes over the long term.

Why Planning Ahead is Crucial

For individuals with substantial retirement savings, understanding these changes is vital for effective tax planning. The window to take advantage of the current lower tax rates is closing, and planning ahead can make a significant difference.

Case Studies and Planning Opportunities

Hans Scheil and Tom Griffith discuss specific case studies and planning strategies in our latest video. These examples illustrate how different scenarios can be managed effectively:

  • Case Study 1: A married couple with an adjusted gross income of $150,000 in 2024 can convert part of their IRA to a Roth IRA, taking advantage of the lower current tax rates.
  • Case Study 2: High-net-worth individuals with large IRAs can save substantial amounts in taxes by planning conversions over the next two years.

Estate Tax Considerations

The TCJA also doubled the estate tax exemption, which will revert in 2026. This change can significantly impact high-net-worth individuals, making estate planning more crucial than ever.

Action Steps to Take Now

  • Review Your Current Tax Situation: Analyze how the upcoming changes will affect your finances.
  • Consider Roth Conversions: Take advantage of the lower tax rates before they expire.
  • Plan for Estate Taxes: Assess your estate plans in light of the changing exemptions.

Conclusion

The changes coming in 2026 are significant, but with proper planning and informed decision-making, you can navigate these changes effectively. Watch our video for more detailed insights and personalized advice.

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Contact us today with any questions, concerns, or just to stay connected.

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