Fong Law Group

Congress Fixes Some, But Not All, Medicare Enrollment Problems

Tucked in the federal spending bill that passed at the end of December 2020 are some changes aimed at simplifying Medicare enrollment and addressing coverage gaps. But Congress chose not to deal with the biggest problem.

Currently, Medicare enrollment begins three months before the month of your 65th birthday and continues for three months after your birthday month (for a total of seven months). Medicare Part A has no premiums, but if you do not enroll in Medicare Part B or Medicare Part D (prescription drug coverage) during the initial enrollment period, you will face penalties (with exceptions; read on). For example, your Medicare Part B premium may go up 10 percent for each 12-month period that you could have had Medicare Part B, but did not take it.  (You can delay signing up for Part B and Part D without penalty for a number of reasons, including if you have valid coverage through an employer with 20 or more employees that you still work for, or, in the case of Part D, you have private insurance that is at least as good as Medicare’s. Check with your employer or insurer to find out whether you can safely delay enrolling.) 

In addition, if you fail to enroll during the seven-month initial enrollment period, you will have to wait for the general enrollment period, which usually runs between January 1 and March 31 of each year. If you enroll during the general enrollment period, your coverage does not start until July 1. This means that you may have to wait up to seven months before you can get Medicare coverage. And, to make matters even more confusing, the general enrollment period for Part B is different from the enrollment period for Part D and Medicare Advantage plans. 

Congress has now taken a stab at ending these coverage gaps and clearing up some of the confusion. Under the new law, starting in 2023, whether you enroll during your initial enrollment period or you enroll during the general enrollment period, Medicare coverage will begin the month after enrollment. The law also allows Medicare to make exceptions for people who delay enrollment because of an “exceptional circumstance,” such as a natural disaster. Finally, the new law directs the federal government to align the Medicare Part B, Medicare Advantage, Medicare Part D enrollment periods by 2023.

While these changes will help eliminate coverage gaps, there are still problems. As tax and retirement policy expert Howard Gleckman points out, Medicare beneficiaries often miss the initial enrollment period because they are not aware of it. An earlier version of the law would have required the Social Security Administration to send notifications to individuals who are turning 65 to alert them of their eligibility for Medicare, but that provision was dropped from the final version.

Who Should Purchase Long-Term Care Insurance?

Buying long-term care insurance is one way to protect against the high cost of long-term care. However, this type of insurance may not be for everyone, so consider all your options.

Long-term care – care in a nursing home or at home -- may be paid for in four main ways: 

• Out-of-pocket. If you have sufficient resources, you can pay for your long-term care needs with money you have saved. 
• Medicare. Medicare covers short-term nursing home stays after an illness or injury that requires hospitalization. Medicare covers up to 100 days of "skilled nursing care" per illness. 
• Medicaid. If you have limited resources, Medicaid will pay for nursing home care. In order to be eligible for Medicaid benefits a nursing home resident may have no more than $2,000 in "countable" assets (it may be higher in some states). 
• Long-term care insurance. With long-term care insurance, you pay monthly premiums to buy a policy that pays your long-term care costs if you are admitted to a nursing home or need home care (depending on the policy). 

Determining whether you need long-term care insurance depends, in part, on your financial situation. The cost of a long-term care insurance policy varies considerably, depending on your age when you purchase the policy, the benefit period, and the level of benefits, among other things, but the premiums can be expensive. Therefore, if you have the resources to self-insure your long-term care and still have money left over, you likely don’t need to buy a long-term care policy. On the other hand, if you cannot afford to pay monthly long-term care premiums, you will likely be able to qualify for Medicaid. 

Another factor to consider is your family’s health history. Most nursing home stays are short-term and paid for by Medicare. A common reason for needing extended long-term care is dementia. If you know you have a family history of Alzheimer’s disease, for example, it may make more sense to buy insurance. 

Of course, we never really know what the future may bring. Long-term care insurance is like any insurance policy: we don’t know if we will ever need it. In general, long-term care insurance is something to consider if:

• you have the resources to pay the premiums, even in retirement,
• you want to preserve your estate for your heirs, and
• you don’t have enough money to self-insure.

Ability to Withdraw Money Early from Retirement Plan Without Penalty Expires at the End of the Year

If you are experiencing financial hardship due to the coronavirus pandemic, you may want to consider withdrawing money from your retirement account while you still can. The special exemption allowing early withdrawals without a penalty ends soon. 

Passed in March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act allows individuals adversely affected by the pandemic to make hardship withdrawals of up to $100,000 from retirement plans this year without paying the 10 percent penalty that individuals under age 59 ½ are usually required to pay. This exemption is only for withdrawals made by December 30, 2020.

If you decide to withdraw money from your retirement account, you will still have to pay income taxes on the withdrawals, although the tax burden can be spread out over three years. If you repay some or all of the funds within three years, you can file amended tax returns to get back the taxes that you paid. 

To qualify for the exemption, you must meet one of the following criteria:

• You or a spouse or dependent have been diagnosed with COVID-19
• You or your spouse have suffered financial hardship due to the pandemic, such as a lost job, a job offer rescinded, reduced pay, business closed, or inability to work due to lack of childcare. 

This step should not be taken lightly. Withdrawing money now means your retirement funds will be reduced and limits the retirement plan’s ability to grow. But for some people, it may be the best option to pay bills and avoid running up high-interest credit card debt. 

For information from the Consumer Financial Protection Bureau on how the withdrawal exemption works, click here.

Husbands Usually Don’t Consider Their Wives’ Future When Deciding When to Take Social Security Benefits

The amount of Social Security benefits a surviving spouse receives depends, in part, on when their deceased spouse began claiming benefits. However, husbands usually don’t take survivor’s benefits into account when claiming benefits, according to a recent study, meaning that many widows will needlessly experience a significant drop in income. 

Because women typically live longer than men and men are often the higher earners, most married women will be widowed and will have their income drop below what they need to maintain their accustomed standard of living. Spouses of a worker who has died are entitled to the worker's full retirement benefits once they reach their full retirement age. If the worker delayed retirement, the survivor's benefit will be higher. Husbands have the option of increasing their surviving spouse’s income by delaying Social Security benefits, but according to a study by the Center for Retirement Research at Boston College, most husbands do not take their wives’ future needs into consideration. 

The study looked at whether greater awareness of Social Security Survivor’s benefits would affect claiming decisions. The study found that husbands tend to take more immediate concerns into consideration, such as their health and whether they have another pension, rather than their wives’ Survivor’s Benefits. Giving the husbands information about how they could improve their wives’ financial well-being by claiming benefits later did not change their claiming decisions. 

The study concludes that in order to protect widows, the government should consider providing Survivor’s Benefits in a way that doesn’t tie the surviving spouse’s benefits to the decision of when to claim benefits. As things stands now, however, if you are the higher earner and are nearing retirement, you may want to take into account how your decision on when to claim benefits will affect your spouse if he or she survives you. 

To come up with a plan that will best protect you and your spouse, contact your attorney. 

To read the study, click here. 

How to Fix a Required Minimum Distribution Mistake

The rules around required minimum distributions from retirement accounts are confusing, and it’s easy to slip up. Fortunately, if you do make a mistake, there are steps you can take to fix the error and possibly avoid a stiff penalty.  

If you have a tax-deferred retirement plan such as a traditional IRA or 401(k), you are required to begin taking distributions once you reach a certain age, with the withdrawn money taxed at your then-current tax rate. If you were age 70 1/2 before the end of 2019, you had to begin taking required minimum distributions (RMDs) in April of the year after you turned 70. But if you were not yet 70 1/2 by the end of 2019, you can wait to take RMDs until age 72. If you miss a withdrawal or take less than you were required to, you must pay a 50 percent excise tax on the amount that should have been distributed but was not.

It can be easy to miss a distribution or not withdraw the correct amount. If you make a mistake, the first step is to quickly correct the mistake and take the correct distribution. If you missed more than one distribution – either from multiple years or because you withdrew from several different accounts in the same year -- it is better to take each distribution separately and for exactly the amount of the shortfall. 

The next step is to file IRS form 5329. If you have more than one missed distribution, you can include them on one form as long as they all occurred in the same year. If you missed distributions in multiple years, you need to file a separate form for each year. And married couples who both miss a distribution need to each file their own forms. The form can be tricky, so follow the instructions closely to make sure you correctly fill it out. 

In addition to completing form 5329, you should submit a letter, explaining why you missed the distribution and informing the IRS that you have now made the correct distributions. There is no clear definition of what the IRS will consider a reasonable explanation for missing a distribution. If the IRS does not waive the penalty, it will send you a notice.

For more detailed information on how to correct an RMD mistake, click here.

Should seniors retire early under the coronavirus crisis?

How Will the Coronavirus Pandemic Affect Social Security?

The coronavirus pandemic is having a profound effect on the current U.S. economy, and it may have a detrimental effect on Social Security’s long-term financial situation. High unemployment rates mean Social Security shortfalls could begin earlier than projected. 

Social Security retirement benefits are financed primarily through dedicated payroll taxes paid by workers and their employers, with employees and employers splitting the tax equally. This money is put into a trust fund that is used to pay retiree benefits. The most recent report from the trustees of the Social Security trust fund is that the fund’s balance will reach zero in 2035. This is because more people are retiring than are working, so the program is paying out more in benefits than it is taking in. Additionally, seniors are living longer, so they receive benefits for a longer period of time. Once the fund runs out of money, it does not mean that benefits stop altogether. Instead, retirees’ benefits would be cut, unless Congress acts in the interim. According to the trustees’ projections, the fund’s income would be sufficient to pay retirees 77 percent of their total benefit. 

With unemployment at record levels due to the pandemic, fewer employers and employees are paying payroll taxes into the trust fund. In addition, more workers may claim benefits early because they lost their jobs. President Trump issued an executive order deferring payroll taxes until the end of the year as a form of economic relief, which could negatively affect Social Security and Medicare funds.  

Some experts believe that the pandemic could move up the depletion of the trust fund by two years, to 2033, if the COVID-19 economic collapse causes payroll taxes to drop by 20 percent for two years. Other experts argue that it could have a greater effect and deplete the fund by 2029. However, as the Social Security Administration Chief Actuary morbidly noted to Congress, this pandemic different from most recessions: the increased applications for benefits will be partially offset by increased deaths among seniors who were receiving benefits. 

It remains to be seen exactly how much the pandemic affects the Social Security trust fund, but the experts agree that as soon as the pandemic ends, Congress should take steps to shore up the fund.

疫情下長者是否需要提早退休 （廣東）

疫情下長者是否需要提早退休（國語）

Long-Reviled Military ‘Widow’s Tax’ Is Finally Being Phased Out

A controversial policy that reduces the benefits of military spouses is on the way out. The so-called “widow’s tax” cuts assistance to surviving military spouses who qualify for benefits under two different military benefit programs.

The two programs are:

• The Department of Defense’s Survivor Benefit Plan (SBP), which allows a military retiree to contribute part of their benefit to ensure that family members receive an annuity of up to 55 percent of their retirement pay when they die.  
• The Department of Veterans Affairs’ Dependency and Indemnity Compensation (DIC), which awards around $15,000 a year to survivors of veterans or troops who die of service-related causes.

Under the current policy, even though SBP and DIC are different programs paid for by different federal agencies, spouses who are eligible for both benefits have their SBP payments offset by the DIC money the spouse receives. An estimated 65,000 families are affected by the offset, costing them thousands of dollars in benefits. Military families have been fighting to eliminate the widow’s tax for years, but have not had success until now.

Signed into law in December 2019, the bipartisan FY20 National Defense Authorization Act eliminates the widow’s tax in phases beginning in 2021. SBP recipients will receive one-third of the DIC offset amount in 2021 and two-thirds in 2022. In 2023, spouses can receive both benefits in full. 

For more information about the change, click here.