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What is best path forward?
Old 08-01-2017, 11:21 AM   #1
Confused about dryer sheets
 
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What is best path forward?

I need this forum's help in figuring out the timing of IRA withdrawals for the older spouse while the younger one is still employed and also medical strategy for the couple.

Withdrawals:

Guy A is 62 and Guy B is 42. Both in good health and both currently employed.

Married filing jointly - Fed tax 25%, State tax 5%

Even if Guy A stops working today and does not have any other income or SS, the tax bracket will not change based only on Guy B's income.

Guy A has about $200K in Trad 401k+Trad IRA.

They can live off of Guy B's income only if needed.

When should Guy A start withdrawing from his Trad 401k+Trad IRA? Would it be prudent to just to wait and take RMDs when required to do so?

Because of the 20 yr difference, RMD percentage is lower per IRS tables.

i-orp was not of help as it couldn't handle 20 year difference. If I made up a smaller age difference of 10 years, it assumes the older spouse drives the retirement which not the case.

Medical:

Currently, Guy A has health insurance through his own employer and Guy B through is own employer - Different employers, different health insurance companies. Both are HDHP + HSA with individual coverage. Employer for each one is a megacorp.

Guy A intends to retire at 65 and start social security at age 70.

Upon retirement, Guy A will switch to health insurance under Guy B as spouse.

Addition of a spouse, results in $1200/yr increase in employee contribution of health insurance. Employer of Guy B will add $600 additional to the HSA for Guy A as spouse.

Fed tax 25%, State tax 5% and FICA 7.65%. So post-tax additional cost will be $1200*(1-0.25-0.05-0.0765) = about $750

Less the $600 received in HSA, the net cost becomes $150.

As such this is a great deal. Or seems so far.

GuyA's medicare Part A will start upon receiving SS at Age 70.

Guy A can delay enrolling in Medicare Part B and D as long as he is covered on Guy B's employer health insurance.

Given this, would it be prudent skip medicare part B for Guy A till Guy B retires?

Say Guy B retires at age 67, then Guy A will be 87. There is a small chance that Guy A is not in best health - may be nursing care etc. Would there be problem in signing up Guy A this late?

Thank you.
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Old 08-01-2017, 02:02 PM   #2
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Originally Posted by tu2008 View Post
....... Guy A will be 87. There is a small chance that Guy A is not in best health .......
very optimistic outlook
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Old 08-01-2017, 02:10 PM   #3
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Correct me if I'm missing something, but doesn't Medicare start at 65?
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Old 08-01-2017, 02:26 PM   #4
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You will need to see if guy B's employee health insurance requires guy a to start medicare.... Some employee insurances become secondary to Medicare for those over 65. This is a question for guy B's HR department.

As for the draw down of guy A's IRA/401k... It sounds like it doesn't really matter from a tax point of view as long as guy b is working. When guy b retires then the draw downs from both a&b s accounts will determine the taxes.
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Old 08-01-2017, 02:28 PM   #5
Confused about dryer sheets
 
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Correct me if I'm missing something, but doesn't Medicare start at 65?
You can enroll starting at age 65. There is no requirement to join it if you are not receiving Social Security.

If receiving Social Security and age 65, then you are automatically enrolled in Part A. The rest of Medicare - Part B and D are optional.

If you start Social Security later say at age 70, then you are automatically enrolled in Part A when you start social security. No way around.
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Old 08-01-2017, 02:34 PM   #6
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Quote:
Originally Posted by tu2008 View Post

Given this, would it be prudent skip medicare part B for Guy A till Guy B retires?

Say Guy B retires at age 67, then Guy A will be 87. There is a small chance that Guy A is not in best health - may be nursing care etc. Would there be problem in signing up Guy A this late?
The net cost is $150 but it is an HSA, so you will pay out of pocket for all care until the deductible has been met. Still sounds like a pretty good deal.

As long as Guy A has continued coverage under Guy B's policy and that policy meets Medicare requirements, it sounds like a good plan. Guaranteed issue for Medicare B, along with D and MediGap, begins when B's policy coverage ends.

One things to keep in mind is the total out of pocket expense. An HSA policy means Guy A pays a high deductible. If he were to develop a chronic condition that requires expensive, ongoing care, it might make more sense to leave the high deductible spousal coverage and enroll in a Medicare / MediGap / PlanD, which might have a lower total out of pocket cost. For now, though, it sounds like the spousal coverage option is more price effective.
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Old 08-01-2017, 02:38 PM   #7
Confused about dryer sheets
 
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Originally Posted by rodi View Post
You will need to see if guy B's employee health insurance requires guy a to start medicare.... Some employee insurances become secondary to Medicare for those over 65. This is a question for guy B's HR department.

As for the draw down of guy A's IRA/401k... It sounds like it doesn't really matter from a tax point of view as long as guy b is working. When guy b retires then the draw downs from both a&b s accounts will determine the taxes.
Thank you for the reply.

Yes, guy B's employee health insurance does NOT require guy A to start medicare as long as guy A is a spouse of employee guy B. This is the megacorp rule spelt out in the Medical SPD very clearly.

If not a spouse but a domestic partner, then law dictates that Guy A enroll in Medicare at age 65. This does not apply here.

Regarding draw down here are the scenarios I see:

Scenario #1:
Guy A age 62-70: No draw downs. No 401k/IRA to Roth conversion. The family tax scenario may be optimized and lower taxes over all.

But once Guy A is age 70+: SS + RMDs with add up tax burden substantially.

Scenario #2:
Guy A age 62-70: 401k/IRA to Roth conversion at 25% marginal rate. The family tax scenario is not lowest.

Guy A age 70+: SS + lower amount of RMDs: additional tax burden for sure but no as much as Scenario # 1.
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Old 08-01-2017, 02:40 PM   #8
Confused about dryer sheets
 
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very optimistic outlook
LOL. I know what you mean.
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Old 08-01-2017, 02:53 PM   #9
Confused about dryer sheets
 
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Originally Posted by MichaelB View Post
The net cost is $150 but it is an HSA, so you will pay out of pocket for all care until the deductible has been met. Still sounds like a pretty good deal.

As long as Guy A has continued coverage under Guy B's policy and that policy meets Medicare requirements, it sounds like a good plan. Guaranteed issue for Medicare B, along with D and MediGap, begins when B's policy coverage ends.

One things to keep in mind is the total out of pocket expense. An HSA policy means Guy A pays a high deductible. If he were to develop a chronic condition that requires expensive, ongoing care, it might make more sense to leave the high deductible spousal coverage and enroll in a Medicare / MediGap / PlanD, which might have a lower total out of pocket cost. For now, though, it sounds like the spousal coverage option is more price effective.
Thank you for bringing up deductible amounts.

Currently they are $3800 for in-network family coverage, with max in-network OOP of $11,000.

Also, "If an employee covers more than one individual under the Health Savings Medical Plan option, and one individual reaches $7150 in eligible in-network out-of-pocket expenses, all remaining eligible in-network expenses will be paid at 100% for that individual only."

I like your suggestion a lot. It will be worth monitoring the switching point.

Best value Medicare Advantage plans in the area are about $1300 in annual premiums + Part B premiums of about $1300 with a $3400 out of pocket max. But the cost sharing curve starts with $20 office copay etc. So it takes a while to reach $3400 max unless a hospital stay or surgery are involved.

There is a zero cost Medicare Advantage plan plus Part B premiums of $1300 but it has $5700 out of pocket max. The cost sharing curve starts with $20 office copay etc. So it takes a while to reach $5700 max unless a hospital stay or surgery are involved.

There is a high deductible Medigap plan F that is about $400 in annual premiums plus similar Part D cost. I believe the deductible portion is about $2200 (?). Also, medical underwriting may be involved

So many options to weigh. How do people do it? I am amazed at folks that can figure this out.

Scenarios for max annual medical cost for Guy A not including nursing care:

Scenario # 1: Guy B's health insurance: $7150+ $150 - a bit of HSA tax savings

Scenario # 2: Best value Medicare Advantage $1300 + Part B premiums $1300 + $3400

Scenario # 3: Zero-cost Medicare Advantage plan + Part B premiums $1300 + $5700

Scenario # 4: High deductible Medigap F + Part D premiums (about $800) + Part B premiums $1300 + $2200 + Part D cost sharing
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