Readers inquire about Roth IRA penalty, Medicare age

Q: I will be reaching 65 soon, as willmy wife. I will continue towork after 65, and my health insurance coverage atwork will covermeandmy wife. I understand that it is not necessary forme ormy wife to enroll in Medicare at 65, andwe can enroll without penalty at a later date. Canyou confirmthis? Whenmust I enroll?

A: It is true that as long as you and your wife are covered under your employer’s health plan, you can delay enrolling inMedicare until you are not covered by your employer.

If youenroll inPartBat age65, you will be subject to PartBpremiums and you may lose your ability to enroll in a Medigap enrollment plan later, or be subject to penalties for late enrollment.

The special period to enroll inMedicare after your employment ends is "during the eight-month period that begins after the employment ends or the coverage ends, whichever happens first."

I suggest you obtain "Medicare and You 2024," the officialU.S. government Medicare handbook, which is available at no cost atwww.medicare.gov/medicareand-you.

Q: Imay have contributed more tomy Roth IRAaccount than Iwas allowed to in 2023. Howcan I avoid a penalty?

A: There are three options you can use to rectify aRoth overcontribution.

First, you can withdrawyour excess contributions. Youwon’t face penalties if you simply withdrawyour excess contribution— plus any income it has earned — by the due date for your tax return, including extensions. You will, however, have to include the earnings portion in your taxable income for the year.

Note that even if you have already filed your tax return for the year, you can still withdrawthe contribution within six months of your tax return’s due date (excluding extensions). Youwould have to file an amended return and include an explanation regarding the withdrawal.

Second, you can recharacterize your excess contributions. Another option is to recharacterize your excessRoth contributions bymoving them into a traditional IRA. You can do that by instructing the financial institution that holds yourRoth IRA to transfer the excess amount, plus any income it has accumulated, into a traditional IRA either at that same financial institution (a sametrustee transfer) or another one (a trusteeto-trustee transfer).

If this is done by the due date for filing your tax return (including extensions), the IRS says, you can treat the contribution as made to the second IRA for that year.

Finally, you can apply the excess contribution and its earnings to a future year’s Roth IRA, as long as you stay within the limits for that year. However, you may still be subject to the6% penalty for the year.

Q: Mywife filed early for her Social Security benefit. I subsequently filed formy Social Security benefit at age 70. Doesn’t thatmake her eligible fora largerbenefit than she nowhas?

A: If your Social Security full retirement benefit exceeds your wife’s current benefit, she can file for a spousal benefit instead. However, she is not entitled to50% of your Social Security benefit; because she filed before her full retirement age, her spousal benefitwould be discounted to less than50% of your benefit. Also, her spousal benefitwould be calculated on the basis of the benefit you qualified for at full retirement age— not on the stepped-up benefit you earned by waiting until age 70 to apply.

Having said that, if you predecease your spouse and she applies for a survivor benefit after she reaches her full retirement age, shewould be entitled to 100% of your Social Security benefit, including the additional benefit youwere receiving because youwaited to age 70 to apply.

Q: In a recent column youwrote that Kaiser indicated therewere no premiums for MedicareAdvantage. I believe that is incorrect. Isn’t there a monthly premium forPartBin MedicareAdvantage?

A: There is a premium for PartBwith MedicareAdvantage programs. Some MedicareAdvantage plans do provide a rebate. Kaisermay have been referring toMedicaid premiums and/or to Part D, prescription drug coverage, which does have premiums with traditional Medicare.

ElliotRaphaelson welcomes your questions and comments at [email protected].

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Elliot Raphaelson

The Savings Game