I see all sorts of articles online regarding the benefits of doing $100,000 Roth conversions over a 10-year period, which makes me think that a lot of people aren’t even evaluating income tax brackets. But that’s the best place to start when evaluating whether a Roth conversion makes sense.

Here are three thresholds you need to consider before deciding to do a Roth conversion:

1. Your income tax rate.

This is us looking left. The reality of a Roth conversion is that it’s just a bet that your current tax rate is lower than your future tax rate. If so, you’d rather pay the taxes today. If you’re in the period between retirement and when you start RMDs (required minimum distributions), this can be a pretty safe bet.

I met with a client the other day who is three years out from RMDs. Once both spouses start receiving RMDs, that will push them from the 24% marginal bracket to 32%. So, in doing the conversion calculation, we want to see how much we can convert while staying in the 24% bracket.

2. Your capital gains tax rate.

We are looking right. People talk about capital gains tax rates as though they are 15% for everyone. That is not the case. Evaluating capital gains rates is most important at low income levels and at high income levels.

When your income is very low, a Roth conversion can cause you to go from paying 0% in capital gains to paying 15% on everything. This is an expensive trigger.

Once taxable income crosses above $518,900 (S) or $583,750 (MFJ) for 2024, you jump from 15% to 20%. Less talked about is the 3.8% net investment income tax, which, as it sounds, is a tax on investment income over $200,000 for individuals and $250,000 for a married couple filing jointly.

3. Your Medicare premiums.

Finally, we are going to check the bike lane to ensure we don’t get smacked by an e-bike. Premiums for Medicare Parts B and D are income-adjusted. However, unlike the above income tests, Medicare premiums are determined by gross, not taxable, income. The Part B premiums can increase by as much as $419 per month, per person, based on income. In my experience, this is the one that upsets people the most.

To be clear, you’re not always trying to stay under every threshold. In many situations, it makes sense to pay more in Medicare premiums to avoid a much larger income tax bill down the road.

Evaluating Roth conversions in your situation requires projecting out your future tax rates; i.e., should you even be crossing the road at all? To get a sense of what your rates may look like, you can build out a free plan here.

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The IRMAA is calculated on a sliding scale with five income brackets, topping out at $500,000 and $750,000 for individual and joint filing, respectively. These figures change annually with inflation. IRMAA calculations have a two-year lag time. Whether you pay an IRMAA in a given year depends on your tax returns from two years ago. 

I scoured the best sources and found sound 2025 projections of the IRMAA brackets and surcharge amounts. The 2025 amounts discussed below are not final; they are estimates prepared by financial professionals who specialize in Medicare planning and IRMAA issues. 

IRMAA is assessed based on your modified adjusted gross income (MAGI)

The Social Security Administration will receive notice to inform you if you are liable for the IRMAA surcharge. However, you can appeal the assessment if your financial situation has changed. For instance, if you amended your tax return, and it changes the income counted to determine the IRMAA (your MAGI), let the SSA know. They will need to see a copy of the amended tax return you filed and your acknowledgment receipt from the IRS. 

Your MAGI amount is calculated anew each year, so your IRMAA can change, or even disappear, depending on how your income fluctuates. Whether or not you pay the IRMAA in 2025 will be determined by your 2023 MAGI. (Your IRMAA eligibility in 2024 was determined by your 2022 MAGI.) There are many definitions of MAGI for different purposes

It's not difficult to determine your Medicare-specific MAGI. Find the beneficiary’s adjusted gross income (AGI) on line 11 of the IRS tax form 1040. AGI is the sum of all your income that is subject to tax — the most common sources for this for retirees is IRA withdrawals, capital gains, dividends, interest from CDs, and only the taxable portion of your social security. You add the amount from line 11 to the tax-exempt interest income that can be found on line 2a of IRS Form 1040.

Projected IRMAA income brackets and surcharges for 2025 

Medicare will determine the 2025 IRMAA charge in the 4th quarter of 2024. That is why your IRMAA determination is based on 2023 filing status and income — it's the last data point Medicare can obtain from the IRS to determine the 2025 IRMAA charge. 

The IRMAA is indexed for inflation annually. The indexing is based on the percentage by which the average of the Consumer Price Index for Urban Consumers (CPI-U) for the 12-month period ending in the most recent August exceeds the average of the 12-month period that preceded that.

Here are projections for the 2025 IRMAA brackets and surcharge amounts:

Married Medicare beneficiaries that file separately pay a steeper surcharge because there are only two brackets. If income is greater than $102,000 and less than or equal to $403,000 will pay a $406.90 surcharge for Part B coverage and $78.60 for Part D coverage. Income greater than $403,000 will result in a Part B and Part D surcharges of $443.90 and $85.80 respectively.  

Bottom line

Income for determining IRMAA comes from the savings vehicles used by many retirees, including from traditional IRAs, 401(k)s and 403(b)s. The IRMAA is a “cliff” surcharge. That means if your modified adjusted gross income exceeds the threshold by as little as a dollar, you will have to pay higher premiums

You should be mindful of the risk of a one-time spike in income that could trigger the IRMAA. To avoid this risk, be sure to properly time a Roth conversion; you can then avoid the IRMAA when you convert and take distributions. Learn more about strategies such as how to lower taxes on required minimum distributions that could otherwise trigger the surcharge.

There’s decent news on the Medicare front. Notably, the Hospital Insurance Trust Fund (HITF) that's used to pay Medicare Part A benefits for recipients. The HITF is expected to be solvent for longer. According to current projections from Medicare trustees, the HITF would be able to fully pay scheduled benefits until 2036, five years later than last year’s forecast. That’s because federal payroll taxes fund the HITF, and the number of covered workers who pay the taxes, and their average wages, are forecasted to be higher. The HITF is mainly funded by Medicare taxes. And currently, there are three Medicare taxes: 

• First, a 1.45% Medicare tax is levied on both employees (through payroll tax withholding) and employers with respect to workers’ wages and salaries, with no cap on taxable earnings. 
• Second, a 2.9% Medicare tax is imposed on people with self-employment earnings, again with no cap. 
• Third, individuals pay an additional 0.9% Medicare surtax once their wages and/or self-employment income exceed $200,000 for single filers and $250,000 for joint filers. This extra 0.9% surtax does not hit employers.

Despite the good news, experts are always looking to shore up the HITF. Let’s look at ideas to raise revenues. Not surprisingly, they involve tax hikes. 

1. President Biden wants to hit upper-income individuals with more taxes.
He would hike the current 0.9% Medicare surtax imposed on employees and self-employed people to 2.1% for taxpayers with over $400,000 of earned income. 

2. He also wants to raise the net investment income tax rate from 3.8% to 5% on individuals with modified adjusted gross incomes over $400,000. The 3.8% NII tax now applies to singles with modified AGIs over $200,000, or $250,000 for joint filers. Biden would also expand the tax to cover more business income than it currently does. 

3. Biden would also redirect NII tax revenues to Medicare’s HITF.
Though enacted under Obamacare, money from the NII tax has gone into general revenue for years. 

4. Here’s a somewhat controversial idea set forth by some think tanks: Have workers pay Medicare tax on employer-paid health insurance.
Employer-paid health premiums are now excluded from an employee’s taxable wages. The tax exclusion for these health benefits is very costly, and either eliminating it or narrowing it can generate lots of revenue that can help support the HITF. One option is to subject all or part of the employer-paid insurance premiums to the 1.45% and 0.9% Medicare taxes paid by employees. A limited approach would impose these Medicare taxes only on employer-paid insurance of high earners. 

5. Imposing an excise tax on sugary beverages has also been suggested.
For example, levying a federal excise tax of three cents per 12 ounces of sodas and other sugar-sweetened beverages and dedicating the revenues to the HITF. 

Lawmakers have lots of time to flesh out revenue and cost-saving options to secure the HITF’s future. Let’s hope they don’t wait until the last minute to act.

This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe. 

Think about it — during what I call the Dynamic Decade+, the period between ages 62 and 75 — there are consequential decisions associated with retirement that should be made. That includes deciding when to stop working, choosing when to claim Social Security, starting Medicare, planning for required minimum distributions (RMDs), considering when to start withdrawing money from your retirement accounts — and more.

What’s more, these decisions are intimately connected, with one decision affecting the next like a row of dominos falling. These decisions are also closely correlated to your tax situation. Essentially, the decisions you make before and during retirement about these issues will likely set your taxes at a certain level for the rest of your retirement, barring major changes in federal tax laws.

These are not decisions that you want to make without a good deal of thought, because they can be so consequential and complex. While complexity can be annoying, it also creates opportunity. If you’re like many pre-retirees or retirees, you may have little idea about how complicated these matters are until you start investigating them.

In this article, you’ll gain an appreciation for the opportunity that retirement creates to control your financial destiny and tax situation through the decisions I’m going to walk you through — some that are irrevocable. These are all decisions that you’ll need to make between ages 62 and 75.

The Dynamic Decade+

Briefly, here are some of the major milestones you’ll hit in the Dynamic Decade+ and their financial implications:

Quitting employment. At some point, you — and your spouse if you have one — will stop working. The average retirement age in the U.S. is 62. When you stop working, you’ll need to either begin Social Security, draw on your retirement savings or both, unless you have an alternative method to generate income.

Enrolling in Medicare. Initial Medicare enrollment begins three months before you turn 65 and ends three months after the month in which you turn 65. Medicare Part B costs $174.70 each month in 2024 — costs will increase if your income reaches certain levels. From there, you can select a Medicare Advantage plan or a Medicare supplemental plan, each with their own specific premiums, copays and deductibles. Medicare Part D, which is prescription drug coverage, also has costs, which can also vary based on income. You can change Medicare Advantage, supplemental and Part D providers once a year during open enrollment, which occurs yearly October 15 through December 7.

Claiming Social Security. The earliest age to claim Social Security is 62, and the latest is 70. If you claim at 62 in 2024, your benefit will be about 30% less than if you waited to claim until your full retirement age of 67. In contrast, if you delay claiming past full retirement age, you will receive 8% in additional income for each year you wait. Up to 85% of your Social Security may be taxable if your individual income is above $34,000 a year. If your income is between $25,000 and $34,000, up to 50% may be taxable.

Receiving a defined benefit pension. When you stop working, you will need to decide when and how to take your defined benefit pension, if you have one. Most entities offering a defined benefit pension will allow you to take it either as a lump sum that you can roll over into an IRA, or you can receive monthly income instead. If you are married, you will have to decide whether to take a joint or single payout; the joint payout is less, but the single payout would mean your pension dies when you do. Defined benefit pensions are taxable at your household marginal tax rate.

Taking retirement distributions. The SECURE 2.0 Act further delayed the point at which you must take distributions from your traditional retirement accounts. If you turn 73 after Jan. 1, 2023, you will be required to take RMDs at age 73. However, if you turn 75 after Jan. 1, 2033, you must take RMDs by age 75. Traditional retirement benefits are taxable at your individual marginal tax rate.

Deciding how to invest retirement savings. At some point during this journey, you must decide how to invest your retirement savings to meet your retirement-specific needs. You can, of course, continue to invest the same way you did when you were working. However, considering that you need to replace the income that you no longer have from working, it’s worthwhile to consider a different approach. Many individuals find their risk tolerance is reduced in retirement, which is another consideration.

Determine distribution strategies

Embedded in all of these decisions is the challenge of creating a sustainable income that will cover your expenses for the rest of your retirement, regardless of how long that lasts. You must take into account your projected expenses and income, which will flow from all of the decisions you’ll make between ages 62 and 75. If you’re like many people, you’ll want to make sure that you can maintain your standard of living throughout retirement.

You’ve also spent decades saving for this moment in time — the moment you retire. You likely have assets in a variety of different accounts. Additionally, they may be subject to different types of taxation. You and your spouse may have traditional IRAs, taxable brokerage accounts and a Roth IRA. You’ll draw monthly income from Social Security, but odds are that Social Security won’t be enough to pay all your bills and give you the standard of living that you want to maintain in retirement.

How taxes fit in

In the absence of an intentional plan, taxes can take a big bite out of your distribution strategy. As I mentioned above, Social Security is taxed for most people, as are defined benefit pensions and distributions from traditional IRAs. You must take those distributions when you turn 73 or 75, regardless of whether you need that money on or not. While delaying RMDs from 70½ to 72, 73 and ultimately 75 can seem like a gift, there’s also a downside. That’s because RMDs are calculated based on life expectancy, and when you are older, your life expectancy is shorter, which means higher RMDs. Higher RMDs mean more taxes.

Then there is the expense side. If your taxable income increases past a certain level, your Medicare Part B premiums can increase. For example, if you and your spouse have modified adjusted gross income greater than $206,000 and less than or equal to $258,000, your premiums would rise by $69.90 a month per person. That’s not unimaginable for many affluent individuals preparing to retire. If you have a joint Social Security benefit of $6,500 a month, bond income of $3,000 a month from a taxable brokerage account and a $2.5 million IRA with distributions of about $100,000 a year, you could easily hit that level. 

But what if, instead, you engaged in intentional tax minimization planning so that you converted at least some of your traditional IRA to a Roth IRA before you turned 75 so that your RMDs were significantly reduced? This might involve retiring but waiting to claim Social Security so that you can have reduced income one year and convert funds from your traditional IRA at a lower tax rate. This is possible if you have money saved in a taxable brokerage account or cash in the bank that you could live on without tapping other sources of income.

This is just one potential strategy you could avail yourself through learning enough about the tax laws and potential distribution strategies or by partnering with a knowledgeable and tax-savvy retirement income financial planner.

However you do it, don’t wait. Many of the decisions you’ll make during the Dynamic Decade+ are irrevocable and time-sensitive. Before you get to the point of making a mistake that might create tax headaches for you later in retirement, investigate your options so that you can, to the greatest possible extent, optimize your retirement for taxes and sustainable income.

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Here are four tips for making the transition from full-time work to retirement:

1. Understand spending changes.

In retirement, your spending typically has the largest impact on how much money you are able to save. This is why it’s important to plan ahead and create a retirement spending strategy in advance. If you work with a financial adviser, they can help you think through your potential options as you’re going through this important transition and build a strategy that is custom-tailored to your unique needs. You should also consider working with a tax professional to help you understand your different accounts and strategically plan for your various account withdrawals.

Contrary to what most people might expect, spending tends to increase in the initial months of retirement. With your entire day free, you may find yourself spending more money during the day than you did when you were working. Don’t panic: Once you adjust to your new routine, your spending may settle down.

2. Thoughtfully time your Social Security benefits.

There are a lot of questions around when to start taking Social Security benefits. The optimal timing will depend on the person and their specific situation.

Sixty-two is the earliest permissible age to start taking Social Security benefits. Keep in mind that your benefits are reduced if you begin taking them before you reach your full retirement age, which is between 66 and 67 depending on your year of birth. If your benefits are reduced, this reduction is permanent and will impact your benefits for the rest of your lifetime. If you delay taking your benefits, you can receive an 8% annual credit for every year that you delay through age 70. So if your full retirement age is 67, and you delay taking Social Security benefits until 68, you would receive 108% of your basic benefit. If you delay until you’re 69, it would be 116%, and so on.

When deciding whether to delay your benefits, you should consider your longevity and the impact on spousal benefits if you are married. For some people, it can make sense to file for benefits before reaching their full retirement age if their benefit as a spouse is higher than their own benefit. For others, it might make sense to delay if they are able to.

It’s important to understand your options and the resulting consequences. For example, filing for Social Security benefits can also trigger your qualification for other benefits, such as Medicare. If you apply for benefits before you are 65, you will automatically be enrolled in Medicare once you turn 65 — even if you have other insurance and may not want Medicare coverage.

3. Assess the costs of Medicare and long-term care.

If you aren’t covered by private insurance, you should understand what is covered by Medicare, how Part D (drug coverage) works and how Part D interacts with Social Security. And if you don’t already have long-term care insurance, look into coverage options and pay close attention to the terms and costs of any policy you consider. You should also speak with a professional about the relative costs and benefits between Medicare Advantage or Original Medicare with Medigap (supplemental insurance).

4. Review your portfolio.

The months leading up to retirement can be a good time to review your portfolio allocation, especially if you expect to live off of your portfolio’s earnings. If you’re close to reaching the age to start taking required minimum distributions (RMDs) from your retirement accounts, you should think about whether you want to implement a different allocation for your taxable accounts and tax-deferred assets.

Some factors to consider:

• When you plan to start taking distributions from your retirement assets and how long you plan to take them
• If you anticipate your marginal tax rate will be higher or lower further into retirement
• Whether you can use qualified charitable distributions (QCDs) to fulfill your required distributions
• If you have enough income and assets to fund your expenses before drawing from your tax-deferred accounts

Entering retirement is a significant life milestone, and it can come with its adjustments. Planning ahead, and keeping these key considerations in mind, can help make the transition easier.

JPMorgan Chase & Co., its affiliates, and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.

J.P. Morgan Wealth Management is a business of JPMorgan Chase & Co., which offers investment products and services through J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment adviser, member FINRA and SIPC.

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With that in mind, here are five things you need to know about Medicare tax, including what it is, who pays, and current rates.

What is Medicare tax?

Knowing how tax dollars are allocated to fund parts of the Medicare program can help you understand your Medicare tax liability. 

Medicare is a U.S. federal health insurance program designed for people age 65 or older. Some people under age 65 with specific disabilities may also be eligible for Medicare. Medicare has different Parts: A, B, C, and D.  

Medicare Part A helps pay for inpatient hospital stays, skilled nursing facilities, hospice care, and home health care services. Unlike Medicare Part B (medical insurance) and Part D (prescription drug coverage), which are partially funded through premiums and general revenue, payroll taxes primarily finance Medicare Part A.

Medicare taxes are part of the Federal Insurance Contributions Act (FICA). They are automatically deducted from employees' paychecks to fund Medicare and Social Security programs.

Note: According to federal data, more than 60 million people currently use Medicare.  However, the number of people using Medicare is expected to grow, which has caused concern over the long-term viability of Medicare and other programs like Social Security.

1. Who has to pay Medicare tax?

Employed U.S. workers, including non-citizens, are required to pay Medicare tax.

• These deductions from your paycheck are mandatory.
• The employer and the employee each contribute to Medicare taxes. (More on that below.)

2. Medicare tax rate

The Medicare tax rate is another thing you need to know.

• It’s 2.9% of earned income and wages. 
• As a W-2 employee, you pay half of that tax (1.45%), and your employer pays the other half, 1.45%.

Medicare taxes are not subject to an income cap, unlike Social Security taxes, which are also automatically deducted from your paycheck. Social Security taxes have a wage base limit adjusted for inflation. That means the Social Security tax does not apply to income above that limit.

With Medicare tax, since there is no income limit, all your earned income and wages are subject to Medicare tax.

3. Additional Medicare tax for high-earners

While the standard Medicare tax rate applies to most individuals, high-income earners may be subject to Medicare surtaxes, including the Additional Medicare Tax and Net Investment Income Tax.

• The “Additional Medicare Tax” is 0.9% and applies to earned income exceeding certain thresholds. 
• For 2024, individuals with earned income over $200,000 ($250,000 for married couples filing jointly) may be subject to the additional Medicare tax.

Note: Employers don’t have to pay a matching .9% with the additional Medicare tax.

What about the net investment income tax (NIIT)? NIIT is another surtax on high earners to raise revenue. This is separate from the additional Medicare tax.

The Net investment income tax of 3.8% typically applies to income from investments such as capital gains, dividends, royalties, rent, and interest. The tax amount is based on your filing status and income. Similar to the additional Medicare tax, there is no employer-paid portion of NIIT.

In any case, high-income earners should be aware of additional Medicare tax liability and plan accordingly.

4. Self-employed have to pay Medicare tax

Self-employed individuals must pay the total 2.9% Medicare tax rate and any additional Medicare tax if they are high earners. The Self-Employed Contributions Act (SECA) requires self-employed people to pay taxes on their net earnings.

Self-employment taxes are typically calculated on net self-employment earnings and reported on the individual's federal income tax return. 

• The self-employment tax rate is 15.3% (12.4% for Social Security and 2.9% for Medicare). 
• For 2024, the first 168,600 of self-employment income is subject to Social Security tax since there is an income limit for Social Security tax. 
• That’s up about 5% from the $160,200 Social Security wage base limit in 2023.

However, income tax deductions can help lower your tax burden. You can deduct half of your Social Security tax on your federal return, but not as an itemized deduction. Your net earnings are reduced by half the amount of your total Social Security tax.

If you are self-employed with at least $400 in net earnings during the year, you should factor in Medicare taxes (along with relevant deductions) when planning your tax obligations.

5. Medicare Part A enrollment is automatic

Most people become eligible for Medicare benefits at age 65. Part A (hospital insurance) enrollment is automatic when you turn 65. Some get Part B (medical insurance) automatically, while others sign up for it if they want it. Generally, if you or a spouse paid Medicare taxes for at least ten years, you may qualify for premium-free Part A. 

It's important to understand your eligibility for Medicare benefits based on your work history and tax contributions and know various enrollment deadlines. Keep in mind that, as Kiplinger has reported, there are several expenses Medicare doesn’t cover.

Medicare tax: Bottom line

All taxpayers, including employees, self-employed individuals, and retirees, need to know how Medicare taxes work. This includes mandatory payroll deductions and additional taxes for high earners. Having a good grasp of Medicare taxes can help you make informed financial decisions and plan for healthcare expenses before and during retirement. 

If you have questions about how Medicare tax impacts you, consult a qualified and trusted financial advisor or tax planner.

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It's important to understand that Medicare Part A and Part B leave some pretty significant gaps in your health-care coverage. This is why increasing numbers of Medicare beneficiaries choose to go with Medicare Advantage, which purports to fill some of those gaps.

A private plan through Medicare Advantage can offer more benefits and lower premiums. But a recent report from the Office of Inspector General found that some beneficiaries of Medicare Advantage are denied necessary care.

Here's a closer look at what isn't covered by traditional Medicare, plus information about supplemental insurance policies, Medicare Advantage and strategies that can help cover the additional costs, so you don't end up with unexpected medical bills in retirement.

Medicare doesn’t provide coverage for outpatient prescription drugs, but you can buy a separate Part D prescription drug policy that does, or a Medicare Advantage plan that covers both medical and drug costs. (Some retiree health-care policies cover prescription drugs, too). You can sign up for Part D or Medicare Advantage coverage when you enroll in Medicare or when you lose other drug coverage. And you can change policies during open enrollment season each fall. Compare costs and coverage for your specific medications under either a Part D or Medicare Advantage plan by using the Medicare Plan Finder.

One of the largest potential expenses in retirement is the cost of long-term care. The median cost of a private room in a nursing home was roughly $120,304 in 2024 (according to Genworth estimates cited by SeniorLiving.org); a room in an assisted-living facility costs $66,126, and a home health aide costs $213 per day.

Medicare provides coverage for some skilled nursing services but not for custodial care, such as help with bathing, dressing and other activities of daily living. But you can buy long-term-care insurance or a combination long-term-care and life insurance policy to cover these costs.

You can also get a long-term care rider on an annuity, which could help defray the cost of long-term care.

Medicare Part A covers hospital stays, and Part B covers doctors’ services and outpatient care. But you’re responsible for deductibles and co-payments. In 2024, you’ll have to pay a Part A deductible of $1,632 before coverage kicks in, and you’ll also have to pay a portion of the cost of long hospital stays — $408 per day for days 61-90 in the hospital and $816 per day after that. Be aware: Over your lifetime, Medicare will only help pay for a total of 60 days beyond the 90-day limit, called “lifetime reserve days,” and thereafter you’ll pay the full hospital cost.

Part B typically covers 80% of doctors’ services, lab tests and x-rays, but you’ll have to pay 20% of the costs after a $240 deductible in 2024. A Medigap (Medicare supplement) policy or Medicare Advantage plan can fill in the gaps if you don’t have the supplemental coverage from a retiree health insurance policy. Medigap policies are sold by private insurers and come in 10 standardized versions that pick up where Medicare leaves off. If you buy a Medigap policy within six months of signing up for Medicare Part B, then insurers can’t reject you or charge more because of preexisting conditions. See Compare Medigap Plan Benefits at Medicare.gov for more information. Medicare Advantage plans provide both medical and drug coverage through a private insurer, and they may also provide additional coverage, such as vision and dental care. You can switch Medicare Advantage plans every year during open enrollment season.

Medicare doesn’t provide coverage for routine dental visits, teeth cleanings, fillings, dentures or most tooth extractions. Some Medicare Advantage plans cover basic cleanings and X-rays, but they generally have an annual coverage cap of about $1,500. You could also get coverage from a separate dental insurance policy or a dental discount plan. An alternative is to build up money in a health savings account (HSA) before you enroll in Medicare; you can use the money tax-free for medical, dental and other out-of-pocket costs at any age (you can’t make new contributions to an HSA after you sign up for Medicare).

Medicare generally doesn’t cover routine eye exams or glasses (exceptions include an annual eye exam if you have diabetes or eyeglasses after having certain kinds of cataract surgery). But some Medicare Advantage plans provide vision coverage, or you may be able to buy a separate supplemental policy that provides vision care alone or includes both dental and vision care. If you set aside money in a health savings account before you enroll in Medicare, you can use the money tax-free at any age for glasses, contact lenses, prescription sunglasses and other out-of-pocket costs for vision care.

Hearing aids are critical for maintaining a healthy brain for those with hearing loss. A recent study found that hearing aids lowered the rate of cognitive decline in older adults at high risk of dementia by almost 50%. 

Medicare doesn’t cover routine hearing exams or hearing aids, which can cost from $2,000 to $4,000 per ear. However, some Medicare Advantage plans cover hearing aids and fitting exams, and some discount programs provide lower-cost hearing aids. If you save money in an HSA before you enroll in Medicare, you can also use that tax-free for hearing aids and other out-of-pocket expenses.

If you have mild hearing loss, an over-the-counter hearing aid might be a good fit for you. According to the Mayo Clinic, these devices typically cost between $99 and $1,700 a pair. Be sure to get an audiology test before you get over-the-counter hearing aids, as Johns Hopkins recommends.

Medicare usually doesn’t cover care you receive while traveling outside of the U.S., except for very limited circumstances (such as on a cruise ship within six hours of a U.S. port). But some Medigap plans will cover 80% of the cost of emergency care abroad up to a certain limit. 

Medicare Supplement plans C, D, F, G, M and N cover some travel-abroad emergency help. No other Medicare Supplement plans provide foreign travel emergency coverage.

Additionally, some Medicare Advantage plans cover emergency care abroad. Or you could buy a travel insurance policy that covers some medical expenses while you’re outside of the U.S. and may even cover emergency medical evacuation, which can otherwise cost tens of thousands of dollars to transport you aboard a medical plane or helicopter.

Medicare Advantage may provide coverage for some things not covered by traditional Medicare. However, as mentioned above, a 2022 report found that some Medicare Advantage insurance providers unnecessarily denied care or payments for care that would have been provided to beneficiaries had they chosen traditional Medicare.

The Advantage insurance providers likewise “denied payments to providers for some services that met both Medicare coverage rules” and the organizations’ billing rules, according to the report. This could prevent or delay needed care for beneficiaries and could result in a burden on medical providers.

The report also found that 13% of the time that Medicare Advantage providers denied prior authorization, the requests met rules making them eligible under original Medicare, suggesting they would have been approved if the beneficiaries had not chosen Advantage instead of standard Medicare.

The report concluded that in those instances, Advantage insurance providers “used clinical criteria that are not contained in Medicare coverage rules.” For example, they might require an X-ray before approving more advanced imaging. In addition, the Advantage insurance providers denied some prior authorizations for care on the basis that the requests didn’t have enough documentation to support approval. Yet, the inspector general found, “our reviewers found that the existing beneficiary medical records were sufficient to support the medical necessity of the services.”

Often, when challenged, however, the Advantage insurance providers would reverse their decisions. So, it’s important for patients to be able to advocate for necessary coverage if denied.

Lawmakers on both sides of the aisle recently introduced legislation to curb frivolous denials of care by Advantage insurers. And the Department of Health and Human Services finalized rules in April 2024 to overhaul how Medicare Advantage customers get prior approval for care. The changes will take effect next year. So stay tuned and do your research when choosing an Advantage provider.

To look up Medicare’s coverage rules and other types of care and procedures, go to Medicare.gov/coverage and use the “Is my test, item or service covered?” tool. Also see . If you believe a claim was unfairly denied, see How to Appeal a Denied Medicare Claim.

There are Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. And what the heck is a doughnut hole, anyway? Medicare open enrollment runs annually from October 15 through Dec. 7 every year. You should understand the basics before you make any choices or changes.

So, to help you wade into the waters of this complicated federal health insurance program for retirement-age Americans, here are 11 essential things you must know about Medicare.

1. Medicare comes with a cost

Medicare is divided into parts. Part A, which pays for hospital services, is free if you or your spouse paid Medicare payroll taxes for at least 10 years. People who aren't eligible for free Part A can pay a monthly premium of several hundred dollars. 

Part B covers doctor visits and outpatient services, and it comes with a price tag — the standard monthly premium in 2024 will be $174.70, up $9.80 from $164.90 in 2023.

Part D, which covers prescription drug costs, also has a monthly charge that varies depending on which plan you choose; the average Part D total premium for 2024 will be about $55.50 per month in 2024, down from $56.49 in 2023. In addition to premium costs, you'll also be subject to co-payments, deductibles and other out-of-pocket costs.

2. Fill Medicare's coverage gaps with a Medigap plan

Beneficiaries of traditional Medicare will likely want to sign up for a Medigap supplemental insurance plan offered by private insurance companies to help cover deductibles, co-payments and other gaps. You can switch Medigap plans at any time, but you could be charged more or denied coverage based on your health if you choose or change plans more than six months after you first signed up for Part B. 

Medigap policies are identified by letters A through N. Each policy that goes by the same letter must offer the same basic benefits, usually the only difference between same-letter policies is the cost. 

Plan F has been very popular because of its comprehensive coverage, but as of 2020, Plan F (along with Plan C) is unavailable for new enrollees. The closest substitute for Plan F is Plan G, which pays for everything that Plan F did except the Medicare Part B deductible. Anyone enrolled in Medicare before 2020 can still sign up for plans F and C.

3. Consider Medicare Advantage for all-in-one plans

You can choose to sign up for traditional Medicare: Parts A, B and D, and a supplemental Medigap policy. Or, you can go an alternative route by signing up for Medicare Advantage, which provides medical through private insurance companies. These plans also frequently include prescription drug coverage.

Also called Part C, Medicare Advantage has a monthly cost, in addition to the Part B premium, that varies depending on which plan you choose. For 2024, the average monthly premium for Advantage plans is $18.50, up from $18 in 2023.

Like traditional Medicare, you'll also be subject to co-payments, deductibles and other out-of-pocket costs. In many cases, Advantage policies charge lower premiums than Medigap plans but have higher cost-sharing. Your choice of providers may be more limited with Medicare Advantage than with traditional Medicare, and recent research has found that sicker enrollees often dump Medicare Advantage in favor of original Medicare.

4. High income earners pay more for Medicare

If your income is above a certain threshold, you'll pay more for Parts B and D. These income-related monthly adjustment amounts (IRMAA) are based on your adjusted gross income from two years earlier. In 2024, single filers with an adjusted gross income (AGI) from 2022 that exceeds $103,000 ($206,000 for married couples filing jointly) will pay a premium ranging from $244.60 to $594 per month, depending on their income. The standard premium will be $174.70.

For Part D coverage in 2024, single filers with an AGI from 2022 that exceeds $103,000 ($206,000 for married couples filing jointly) will pay an extra $12.90 to $81 per month, depending on their income.

5. When to sign up for Medicare

If you are already collecting Social Security benefits, you will be automatically enrolled in Parts A and B. You can choose to turn down Part B, since it has a monthly cost; if you keep it, the cost will be deducted from Social Security if you already claimed benefits.

You will have to sign yourself up for Parts A and B if you have not started Social Security. The seven-month initial enrollment period begins three months before the month you turn 65 and ends three months after your birthday month. Sign up in the first three months to ensure coverage starts by the time you turn 65.

You may be able to delay signing up for Medicare if you are still working and have health insurance through your employer (or if you’re covered by your working spouse’s employer coverage.) But you will need to follow the rules and must sign up for Medicare within eight months of losing your employer’s coverage to avoid significant penalties when you do eventually enroll.

6. A quartet of Medicare enrollment periods

There are several other Medicare open enrollment periods, in addition to the seven-month initial enrollment period. 

If you missed signing up for Part B during that initial enrollment period and you aren't working (or aren't covered by your spouse's employer coverage), you can sign up for Part B during the general enrollment period that runs from Jan. 1 to March 31. Coverage will begin on July 1. But you will have to pay a 10% penalty for life for each 12-month period you delay in signing up for Part B. 

Those covered by a current employer's plan, though, can sign up later without penalty during a special enrollment period, which lasts for eight months after you lose that employer coverage. If you miss your special enrollment period, you must wait until the general enrollment period to sign up.

Open enrollment runs from Oct. 15 to Dec. 7 every year, during which you can change Part D plans or Medicare Advantage plans for the following year, or switch between Medicare Advantage and original Medicare. Advantage enrollees also can switch to a new Advantage plan or original Medicare between Jan. 1 and March 31. And if a Medicare Advantage plan or Part D plan available in your area has a five-star quality rating, you can switch to that plan outside of the open enrollment period.

7. A filled doughnut hole for Medicare Part D

In 2020 the dreaded Part D "doughnut hole" was filled. That hole is a coverage gap in which you used to face much higher out-of-pocket costs for your drugs, but that is no longer the case. For 2024, when the total amount you and your plan have paid for drugs reaches $5,030 then you will pay 25% of any additional costs. (This percentage used to be higher before the gap was closed.) Prescription drug manufacturers pick up 70% while insurers pay 5%.

Catastrophic coverage, with the government picking up most costs, begins when a patient's out-of-pocket costs reach $8,000, the maximum spending limit for beneficiaries in 2024. 

Any deductible paid before you entered the doughnut hole counts toward that annual maximum as does the 25% you contributed while in the doughnut hole and the 70% that pharmaceutical companies paid on your behalf.

8. Medicare offers more free preventive services

Medicare beneficiaries can receive a number of free preventive services. You get an annual free "wellness" visit to develop or update a personalized prevention plan. Beneficiaries also get a free cardiovascular screening every five years, annual mammograms, annual flu shots, and screenings for cervical, prostate and colorectal cancers.

9. Medicare expands telehealth offerings

Although most Medicare Advantage plans have been covering telehealth for years, traditional Medicare used to restrict the service only to certain devices and practitioners, and patients had to be at a Medicare facility. 

When the coronavirus pandemic hit, telehealth was expanded so that patients could use smartphones in their own homes to consult with a broader range of medical professionals. This feature has become permanent. 

10. What Medicare does not cover

While Medicare covers your healthcare, it generally does not cover long-term care — an important distinction. Under certain conditions, particularly after a hospitalization to treat an acute-care episode, Medicare will pay for medically necessary skilled nursing facility or home healthcare. 

But Medicare generally does not cover costs for "custodial care" — that is, care that helps you with activities of daily living, such as dressing and bathing. To cover those costs, you will have to rely on your savings, long-term-care insurance or Medicaid — if you meet the income and asset requirements. Traditional Medicare also doesn't cover routine dental or eye care and some items such as dentures or hearing aids.

11. You have the right to appeal a Medicare decision

If you disagree with a coverage or payment decision made by Medicare or a Medicare health plan, you can file an appeal. The appeals process has five levels, and you can generally go up a level if your appeal is denied at a previous level. 

Gather any information that may help your case from your doctor, healthcare provider or supplier. If you think your health would be seriously harmed by waiting for a decision, you can ask for a fast appeal to be made and if your doctor or Medicare plan agrees, the plan must decide your request within 72 hours.

Contact your State Health Insurance Assistance Program (SHIP) if you need help filing an appeal. 

Related Content

• Is a Medicare Advantage Plan Right for You?
• 12 FAQs About Medicare
• You Can Appeal the IRMAA for Medicare Parts B and D
• What You'll Pay for Medicare in 2024

A recent study from Northwestern Mutual found that adults across the U.S. believe they will need $1.46 million to retire comfortably. That’s a 53% increase compared to the $951,000 many believed they would need back in 2020.

Unfortunately, the amount Americans actually have saved is dropping. According to the same study, the average American had $89,300 saved in 2023. That number has dropped to $88,400 in 2024. So what does this mean when it comes to long-term health care costs, and what can you do now to avoid financial stress in your golden years?

Before you can formulate a plan to attack health care costs in retirement, it’s important to understand the federal programs in place and how much coverage they provide.

Federal programs and their coverage

Once you turn 65, you become eligible for Medicare. Medicare is a federal insurance program that is meant to help offset health care costs in retirement. Part A covers in-patient hospital stays, hospice care and some home health care. Part B covers certain doctor’s visits, outpatient care, medical supplies and preventive services. Part D helps cover the cost of prescription drugs. Although there are many parts to Medicare, it doesn’t cover everything — forcing some people to enroll in supplemental insurance programs known as Medigap plans. However, the plans may only cover a certain amount depending on how much money you have saved.

The Employee Benefit Research Institute found a 65-year-old man enrolled in a Medigap plan with average premiums will need to have $106,000 saved just to have a 50% chance of having enough to cover premiums and average prescription drug costs. That number jumps to $128,000 for women. This difference in cost is likely due to the fact that women tend to live longer than men. To have a 90% chance of covering health care costs in retirement, the average man will need $184,000 in savings; women will need $217,000. According to the CDC, the average life expectancy for women is 79; for men, it’s 73.

Based on these findings, it’s safe to say health care costs will take a decent chunk from your retirement fund — but don’t let these numbers paralyze you. There are small steps you can take now to help you become more financially secure in retirement.

1. Maintain a healthy lifestyle.

It's obvious advice, but it bears repeating. If you make an effort to stay active and eat healthy, you'll likely spend less on health care than someone who ignores diet and exercise and has other unhealthy habits such as smoking.

2. Boost your retirement savings.

Generally speaking, the sooner you start saving for retirement, the better off you’ll be. If possible, increase or max out contributions to your employee savings plan.

The IRS also allows adults over the age of 50 to make annual catch-up contributions to certain accounts:

• 401(k). You can contribute an extra $6,000 each year.
• 403(b). Employees with at least 15 years of service can contribute up to $6,000 annually.
• IRA. For either a traditional IRA or Roth IRA, you can contribute up to $1,000 more each year.

3. Open a health savings account (HSA).

If your employer offers a health plan that is HSA-eligible, consider enrolling. As part of the plan, you can contribute to a health savings account (HSA) without a tax penalty. Your contributions are made pre-tax. As a bonus, your savings grow tax-free, and you can withdraw money tax-free as long as it is used for qualified medical expenses.

4. Consider your retirement age.

The average age of retirement is 62 for most Americans. While three extra years of retirement may sound good, there are some serious drawbacks. During those three years, you won't be able to contribute to employee-sponsored savings plans. You won't have a steady income. You also won't be eligible to enroll in Medicare until you are 65. That means you’ll be paying out of pocket for health insurance for three years.

5. Live like you are already retired.

An easy way to boost your savings is to cut back on your spending. Start by envisioning your retirement and look for costs to cut. If that vision involves downsizing your home or cooking healthy meals at home, begin making those changes now. Limit the career clothing you buy. Consider purchasing a more economical car. These changes will save you money right away. They will also make the transition into retirement easier.

Unfortunately, doctor visits and medication costs aren’t the only health care expenses you’ll need to account for. Another major factor you’ll need to consider is where you’re going to live as you age — especially if you become cognitively impaired. Data from Genworth found that in 2023 Americans could spend up to $75,504 annually for in-home care, $64,200 for assisted living care and up to $116,800 for nursing home care. Those costs alone could eat through your retirement savings in just a few years. Fortunately, there are several long-term insurance plans that can help offset these costs.

Here are some common plans:

Long-term care insurance. This type of insurance is specifically designed to cover the costs of long-term care services. Policyholders pay premiums in exchange for coverage, which can help cover home care, assisted living or nursing home care expenses.

Hybrid life insurance with long-term care rider. Some life insurance policies offer a long-term care rider, allowing policyholders to access a portion of the death benefit to cover long-term care expenses if needed. These policies provide both life insurance coverage and long-term care benefits.

Annuities with long-term care benefits. Certain annuity products include long-term care benefits that can help cover expenses if the annuitant requires long-term care. Annuities with long-term care riders may offer a lump-sum payment or monthly benefit to cover care costs.

Medicaid. Medicaid is a joint federal and state program that provides health coverage to eligible low-income individuals, including coverage for long-term care services. Eligibility criteria vary by state, but typically income and asset requirements must be met to qualify.

Employer-sponsored plans. Some employers offer long-term care insurance as part of their benefits package. These plans may provide coverage for employees and their eligible family members at group rates.

Accounting for long-term health care is a crucial part of retirement planning. There are a number of steps you can take to help grow your savings now, and there are some insurance options for covering long-term care expenses.

As you’re planning, consider your current health status, cost of care, health insurance coverage, financial resources, family support and personal preferences. Taking these factors into account can help you make an informed decision that best suits your needs.

Related Content

• High Health Care Costs Can Cause Even the Insured to Skip Care
• Two Keys to a Happy Retirement: Health and Wealth Plans
• Before You Retire, Consider These Five Questions
• How to Pay for Long-Term Care
• 10 Things You Should Know About Long-Term Care Insurance

Under the Medicare Prescription Drug Inflation Rebate Program, some beneficiaries that use one or more of the 41 rebatable drugs on the list may save between $1 and $3,575 per average dose depending on their coverage, the HHS said. The agency estimates that 763,700 people with Medicare use one or more of the 41 drugs annually.

Last December, the agency released its first-quarter 2024 list of rebatable drugs under the program. There were 48 drugs in that list and Medicare coinsurance for certain Part B drugs on the list were expected to save some beneficiaries up to $2,786 per dose, HHS said at the time. 

Drug companies are required to pay the rebates for certain drugs to Medicare when prices increase faster than inflation as part of the Biden administration’s Inflation Reduction Act, which established the program.

HHS Secretary Xavier Becerra said in a statement that the administration “will continue to use every lever we have to lower healthcare costs for more Americans.”

Drug price talks continue

In addition, drugmakers participating in Medicare's price talks on the first 10 Part D drugs sent counteroffers to the agency earlier this month, following Medicare's initial offer in February.

The drugs, covered under Part D, are: Eliquis, Jardiance, Xarelto, Januvia, Farxiga, Entresto, Enbrel, Imbruvica, Stelara and Fiasp/NovoLog.

Negotiations are slated to end August 1. New negotiated prices for the drugs expected to be announced by September 1, with an effective date of January 2026.

Guidance on Medicare programs

The Centers for Medicare & Medicaid Services (CMS) provides a variety of guidance documents on the rebatable drugs, price negotiations with drugmakers, and other Medicare programs. For more information on reducing coinsurance for certain Part B rebatable drugs under the Medicare prescription drug inflation rebate program, see this CMS fact sheet.

HHS also has launched LowerDrugCosts.gov, a new website for Medicare beneficiaries with information related to the drug pricing provisions under the Inflation Reduction Act as well as resources for Medicare enrollees and other interested parties.

Related Content

• Deadline for Medicare Advantage Open Enrollment Is March 31
• Medicare: Dozens of Drugmakers Raised Prices Faster Than Inflation
• What You’ll Pay for Medicare in 2024