Medicare Advantage Plans May Come With Unpleasant Surprises.

Maybe you should think twice before buying from a celebrity endorser.

Jim Lorenzen, CFP®, AIF®

Let’s start with this:  I’m not a Medicare expert.  My basic knowledge as a CFP® professional certainly helps when it comes to integrating health care into a financial plan, but make no mistake about it:  Health insurance is a highly complex area; so, when it comes to selecting plans, including Medicare, it pays to consult an expert – someone who does nothing but.

That’s why I was intrigued by an article I read last April by Joanne Giardini-Russell* entitled, “Should You Buy a Medicare Plan from Joe Namath?

A few points about Medicare Advantage plans (also called “Part C” plans) that caught my eye:

  • The reason private insurers can offer these plans for zero dollars per month is because the federal government actually pays them to offer Advantage plans to the public – about $1,000 per month, or more, per enrollee.  In exchange, the plans administer and manage the coverage for those who sign up.
  • When enrolling for a Medicare Advantage plan, you still have to pay your Medicare Part B premium.  Most pay around $144 monthly for Part B coverage.   
  • If you see a specialist (like a cardiologist or dermatologist) you still have to pay co-pays
  • Your plan can change mid-year and your physician or facility may no longer be in your network.
  • Many people do not expect out-of-pocket costs – they only remember the “free” parts that were advertised in the commercials.
  • Should you receive a bad diagnosis – cancer, for example – you may be surprised to find that co-pays come with chemo/radiation which can add up to $6,700 annually, and…
  • If you get that bad diagnosis, you may find that if you want to return to original Medicare paired with a Medigap plan – these cost more but can provide more comprehensive coverage – you will have to go through medical underwriting and can be denied coverage.

In other words, these Advantage plans are good if you’re healthy and stay healthy.   But, a bad diagnosis could leave you trapped.

Good to know, ya think?

Jim

*Joanne Giardini-Russell is a Medicare expert with Giardini Medicare.

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Interested in becoming an IFG client?  Why play phone tag?  Schedule your 15-minute introductory phone call!

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-based registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742.  IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.

Opinions expressed are those of the author.  The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Systematic Roth Conversion Strategies Can Be Powerful….

… especially when they’re tied to a plan.

 

Jim Lorenzen, CFP®, AIF®

Do you know what a systematic Roth conversion is?  It’s worth knowing!

Even at modest growth rates, the results of a systematic Roth conversion can be surprisingly impressive over time.   Take a look at this example from Debra Taylor, a tax attorney and advisor in Franklin Lakes, New Jersey, comparing no conversion to systematic conversion.  What would the traditional IRA and the Roth IRA (funded with systematic conversions) look like?

Using a modest growth rate of 5% per year over a ten-year period, here are the results beginning with a $500,000 IRA and converting just $17,500 per year.

With no conversion, the traditional IRA has grown to $1,026,744.  Not bad, except that all that money doesn’t belong to the IRA owner.  Some of it belongs to Uncle Sam – it’s his IRA, too.  How much, of course, depends on what tax rates are in effect when withdrawals occur.

Using a ten-year systematic conversion plan instead, that $500,000 IRA ends-up with only $336,158 at the end of 10-years.   That means lower required minimum distributions (which impact how much your Social Security is taxable and your Medicare premium amounts) and lower taxes, too.  How much lower?  Pick a bracket and do the math on both – you’ll likely be surprised.

Instead, using a systematic Roth conversion strategy, those ten annual $17,500 conversions resulted in a tax-free Roth IRA value of $1,405,285!   Combined with the traditional IRA, results in two retirement accounts now worth a total of $1,741,443 – that’s $714,699 (70%) more!   And, 81% of the owner’s retirement money – the money in the Roth IRA – is tax free!

The best time to begin a strategy like this is after age 59-1/2  and the age when required minimum distributions (RMDs) begin.  That age depends on your birth date under the SECURE Act.  The age is 72 if born on or after July 1, 1949.  It’s 70-1/2 for all others.  Once RMDs begin, you can’t use RMDs to fund Roth conversions; you’ll have to take your RMD first, then take the conversion amount.  Secondly, the strategy works only if you convert the entire amount and pay any tax due from other funds.

It goes without saying – or maybe it doesn’t – that any strategy should be tied to a solid financial plan that can ‘stress-test’ outcomes and probabilities.   Nothing beats experienced and informed guidance.

Jim

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Interested in becoming an IFG client?  Why play phone tag?  Schedule your 15-minute introductory phone call!

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-based registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742.  IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.

Opinions expressed are those of the author.  The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.