How does your income affect health insurance before Medicare?

The gap before Medicare

When you retire before 65, your paycheck stops and your employer coverage usually ends with it. Medicare doesn’t start until 65, so you may be buying health insurance on your own for a few years. At full price, that coverage can cost more than a mortgage payment.

Your income sets the price

What many people never hear is that the help available with those premiums depends on the income on your tax return. In early retirement, you often have more control over that number than you did while working:

• Money you take out of a traditional IRA counts as income.
• Money you spend from savings or a Roth IRA generally doesn’t.

Where people get caught

A large Roth conversion or IRA withdrawal adds to your income for the year. If it pushes you over the income limit for the premium tax credit, the credit can shrink or disappear for the whole year, and you may have to pay back some or all of it when you file your tax return.

None of this has to be a surprise. Your income for the year can be mapped out ahead of time, so the insurance bill and the tax bill get decided together.

How we handle it

At Sansone CPA & Financial, we coordinate your tax, investment, and retirement decisions so the years before Medicare are planned, not just paid for.