Money Talks: Retirement Side Cases and Health Savings Accounts

Dear Liz: My wife and I are withdrawing an unusually large amount from our IRAs to put a 20% down payment on a new retirement home. Unfortunately, this withdrawal will cause our modified adjusted gross income to exceed the limits, which will cause our Medicare premiums to increase in 2026. Is there a way to avoid this increase?

Answer: You have the right to appeal a contribution increase, but successful appeals typically require someone to experience a drop in income due to retirement, the death of a spouse, or divorce, for example. A lump-sum increase in income — from a large IRA distribution or capital gains from selling a home, for example — typically does not qualify for the relief.

As you know, Medicare’s income-based monthly allowance (IRMAA) adds copayments to Part B and Part D premiums when your income exceeds certain amounts. In 2024, the IRMAA takes effect when your modified adjusted gross income exceeds $103,000 for individuals or $206,000 for married couples filing a joint return. There is a two-year lag between when you report your income and when the IRMAA increases your premiums.

The good news is that the increase isn’t permanent. If your income returns to normal next year, so will your 2027 contributions.

Ex-husband delays Social Security payments. Does she have to wait, too?

Dear Liz: I read your column about Social Security benefits for divorced spouses. I got divorced on January 1. My ex-husband will be 65 next year and wants to defer benefits until age 67. Do I have to wait until then to receive spousal benefits because of his decision? I will also be 65 next year. We were married for 36 years.

Answer: If you were still married, you would have to wait for your husband to file for Social Security before you could apply for spousal benefits. Since you’re divorced, you only have to wait until he’s eligible to file for retirement benefits. (He became eligible when he turned 62.)

That doesn’t mean you should rush to file, though. Starting benefits before you reach full retirement age means accepting a permanently reduced check. Your benefit would also be subject to an earnings test that withholds $1 of your benefit for every $2 you earn over a certain limit, which in 2024 is $22,320.

Waiting until full retirement age means both the reduction and the earnings test disappear. If you were born in 1960, your full retirement age is 67.

Distributing Wealth in Health Savings Accounts

Dear Liz: I have a family health savings account with a qualifying health plan with a high deductible. The HSA will become my individual account when my youngest son turns 26 and is no longer eligible for our insurance plan. My husband cannot contribute to the HSA because he is covered by Medicare. I read that if I predecease him, he can use my HSA for his own medical expenses. Can I use my HSA for his medical expenses now, even though I cannot contribute on his behalf?

Answer: Yes. A spouse can use HSA funds for qualified medical expenses for the spouse as well as other dependents, according to Mark Luscombe, principal analyst at Wolters Kluwer Tax & Accounting.

If you want to pass the funds on to your husband if you die first, you should make him the designated beneficiary of the account. Otherwise, the account could become taxable upon your death, as mentioned in last week’s column.

More on Health Savings Accounts and “Deathbed Payments”

Dear Liz: I just read your column on HSAs. I was with you all the way to the “deathbed payday.” I sincerely hope I don’t think about my HSA when I’m close to death. I’d rather just pay the tax.

Answer: That’s your prerogative, of course, but financial advisors note that good recordkeeping can help people with large HSA balances avoid paying unnecessary taxes.

HSAs offer a rare triple tax advantage: contributions are tax-deductible, the money grows tax-free, and withdrawals are tax-free when used for qualified medical expenses. Plus, HSAs can be rolled over from year to year and invested to grow, which has led some people to save up significant amounts to supplement their retirement funds.

Fortunately, you don’t have to take the withdrawal the same year you incur unreimbursed medical expenses. As long as the expense was incurred after the HSA was set up and before your death, it could justify a tax-free withdrawal years or even decades later. People who keep good records of their unreimbursed medical expenses can justify last-minute withdrawals if necessary.

Liz Weston, Certified Financial Planner®, is a personal finance columnist. For questions, write to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or use the Contact form on asklizweston.com.