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March 2025

Mar 24
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Do You Know the Connection Between Income and Medicare Costs? 

By Medicare

As you near retirement you’re probably focused on making sure you have enough income to enjoy the years ahead. While enjoying what you’ve worked hard to build should be a priority, you should also keep in mind that withdrawing the money you’ve saved in traditional 401(k)s and IRAs can impact your Medicare costs throughout your retirement. Read on to see what having a high income could cost you in Medicare premiums and what strategies could potentially help you keep more money in your pocket and less going to Medicare premiums which are deducted from your Social Security check.

Understanding Medicare

First make sure you understand Medicare, how it’s broken up, and what plan you will likely choose. Medicare is sectioned into different parts, each serving a unique role in delivering health care coverage. These parts include Part A, Part B, Part D, and additional coverage options like Medicare Advantage (Part C) and Medigap.

  • Part A (Hospital Insurance): Covers inpatient hospital stays, skilled nursing facility care, hospice care, and limited home health care. This is normally free for most people who have qualified for Medicare coverage.
  • Part B (Medical Insurance): Covers doctor visits, outpatient care, home health care, and preventive services like screenings and wellness visits, along with durable medical equipment (e.g., wheelchairs). Part B coverage is the premium that will be deducted from your Social Security check if you don’t choose Medigap or Part C.
  • Part D (Prescription Drug Coverage): Helps cover the cost of prescription medications, including certain vaccines. You can get Part D as a standalone plan along with Part B or as part of a Medicare Advantage Plan.
  • Medicare Supplemental Insurance (Medigap): Extra coverage from private insurers to help pay for out-of-pocket costs in Original Medicare, such as copayments and coinsurance. Plans are standardized by letter (e.g., Plan G, Plan K).
  • Part C (Medicare Advantage Plans): Private, Medicare-approved plans that may bundle Part A, Part B, and often Part D (prescription drug) coverages. Usually limited to providers within the plan’s network. May have different out-of-pocket costs and additional benefits not available in Original Medicare, like vision and hearing coverage.

 

Comparing Your Choice of Original Medicare with Medicare Advantage

Original Medicare

  • Includes Part A and Part B.
  • Option to add Part D for prescription coverage.
  • Flexibility to see any Medicare-accepting provider in the U.S.
  • You can also add Medigap for extra coverage on costs not covered by Original Medicare.
 Medicare Advantage (Part C)

  • Private, Medicare-approved plans that bundle Part A, Part B, and often Part D (prescription drug) coverages.
  • Usually limited to providers within the plan’s network.
  • May have different out-of-pocket costs and additional benefits not available in Original Medicare, like vision and hearing coverage.

 

Understanding Modified Adjusted Gross Income (MAGI)

There is one thing that will have a huge impact on your Medicare costs— your modified adjusted gross income (MAGI). Your MAGI is your adjusted gross income (AGI) minus allowable tax deductions and credits. Once you retire, you may be surprised to find that a combination of income from pensions, investment earnings, traditional (non-Roth) IRA withdrawals, and traditional 401(k) withdrawals may land you with a higher MAGI than you realized. While you may no longer be earning a traditional income from working a job, your MAGI will still reflect all of your taxable income.

RMD Impacts

A required minimum distribution (RMD) is the amount you are required to withdraw annually from specific retirement accounts, such as traditional (non-Roth) 401(k)s and traditional Individual Retirement Accounts (IRAs). Starting at age 73, you must take your first RMD by April 1 of the following year, and each subsequent RMD must be taken by December 31 each year after. These mandatory withdrawals are added to your taxable income, minus any allowable deductions or credits.

Higher Medicare Premiums for High Earners

How does retirement income connect to Medicare premium costs? If you have a high income, you will be subject to an income-related monthly adjustment amount (IRMAA) that must be paid in addition to Medicare Part B and Part D premiums, and it’s calculated every year. If the SSA determines you must pay an IRMAA, you’ll receive a notice with the new premium amount and the reason for it.

For 2025, the standard monthly premium is $185 per person per month. In 2025, single filers with 2023 MAGI of more than $106,000 and married couples filing jointly with 2023 MAGI of over $212,000 will pay more. (See Two-Year Lookback below for why we used 2023 MAGI.)

The Part B IRMAA surcharge amounts per person per month for 2025 range from $74.00 to $443.90, while Part D surcharges range from $13.70 to $85.50 depending on income!

Other Impacts

Other income sources can also contribute to an increased MAGI. Capital gains, home sale profits, and even Treasury bill yields contribute to a retiree’s MAGI.

Two-Year Lookback

Now that you know what contributes to your MAGI, know that when you go to enroll in Medicare, your MAGI from your tax return two years prior will determine your premiums. This “two-year lookback” rule can catch retirees off-guard if they receive large distributions or gains, increasing their premiums unexpectedly. This is why it’s a good idea to start preparing for premium costs as soon as possible, and be strategic about it. The last thing you want is to be settling into retirement and then be hit with a high premium if you can avoid it. Be aware that the two-year lookback is ongoing throughout your retirement, and your premiums may go up in any given year if your income goes up two years prior.

Potential Strategies

By now you know that your Medicare premiums are directly influenced by your modified adjusted gross income (MAGI)—the higher your MAGI, the higher your premiums may be. To help manage this, it helps to work with a retirement planner years before filing for Medicare at age 65, and years before you plan to retire so that a specific retirement income plan can be created for you.

Your advisor will work with you to map out your retirement with a strategy that includes which accounts to draw from and/or which taxable accounts you might want to convert to Roth accounts to potentially save money for the long-term. It all works together!

 

Planning for Medicare can seem like an overwhelming process. From knowing which retirement accounts to leverage to help keep your MAGI as low as possible, to accounting for that two-year lookback, it can be a lot. That’s why the best place to start in your plan is talking to someone knowledgeable about retirement planning.

If you need help getting started in your Medicare planning, we’re here to help! You can reach Bay Trust Financial at 813.820.0069.

 

 

Sources:
https://www.medicare.gov/basics/get-started-with-medicare/medicare-basics/parts-of-medicare

https://www.investopedia.com/terms/m/magi.asp

https://www.investopedia.com/terms/r/requiredminimumdistribution.asp

https://www.cms.gov/newsroom/fact-sheets/2025-medicare-parts-b-premiums-and-deductibles

https://www.kiplinger.com/retirement/medicare/what-you-will-pay-for-medicare-in-2025

 

 

 

Mar 04
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Mitch Zacks – Weekly Market Commentary: Investors Should Start Looking Beyond the Fed

By Weekly Market Commentary

Are You Overexposed to Growth Stocks?

Most investors are aware of the outsized impact growth stocks have had on total returns in the U.S. stock market, at least for the past couple of years. In 2024, the mega-cap technology companies often referred to as AI “hyper-scalers” accounted for 41% of the S&P 500’s total return. And perhaps not surprisingly, the two best performing sectors last year were Communications Services and Technology, where many growth stocks can be found.

Growth stocks have no doubt done well. But there is also a narrative that ‘growth’ is the only category that matters, especially given the view that we could be in the early stages of an AI-driven economic transformation.1

I’m not writing to say this is wrong, or that growth stocks’ momentum is coming to an end soon. My goal in this week’s column is to remind investors that a pure growth mindset can introduce risk in an investment portfolio—whether it’s from over-allocating to growth stocks or underweighting other attractive categories, like value stocks.

2024 offers a useful case study for the argument I’m making. As mentioned, Technology stocks led the way. But we also saw improving performance outside of the Big Tech category, with the median stock in the index returning +12% and leadership changing hands throughout the year. In the second half of the year specifically, value stocks and growth stocks performed roughly in-line with each other, as value staged a strong rally starting in July. A diversified portfolio could have captured this upside with less overall risk.

Investors who simply own an index may think they’re getting this same level of diversification, but they may actually have greater exposure to growth stocks than they’re aware of. Case-in-point: growth stocks made up over 35% of the S&P 500 Index as of the end of last year, which is substantially above the historical average of 24%.

Consider that owning the S&P 500 today could mean over-allocating to growth stocks and under-allocating to value stocks, which means having a portfolio overweight to stocks that trade at high multiples. Value stocks, by contrast, trade at relatively attractive levels today, and are far below their long-term median valuation. I estimate that value stocks would need to rise by some 40% just to get back to this historical valuation.

While past performance doesn’t guarantee future results, it’s noteworthy that the last time the valuation disparity between the Russell Growth and Russell Value indexes was as extreme—back in December 2000—value stocks went on to substantially outperform growth stocks over the following one, three, and five years. High-growth stock prices might eventually steer investors toward more reasonably priced options and expand the market focus beyond just the largest firms.

There’s also an earnings case for looking beyond growth. In aggregate, pretax corporate profit margins are near record levels, and the “non-Magnificent Seven” stocks in the S&P 500 are poised to see double-digit earnings growth for the first time in four years. While the Technology sector is expected to see strong double-digit earnings growth as well, Tech earnings growth is poised to decelerate in 2025 while other sectors in the S&P 500 could see accelerating earnings growth. Investors tend to prefer the latter.

Bottom Line for Investors

Growth stocks have undeniably driven recent market momentum, and have commanded leadership over value for much of the past decade. But over-committing to the growth theme not only increases risk in a portfolio, in my view, it also misses out on other areas of the market that trade at attractive valuations and could see accelerating earnings growth this year.

Growth stocks may grab the headlines, but emerging opportunities in other sectors are equally compelling. As market valuations shift and uncertainty rises, investors with diversified portfolios—like we manage here at Zacks Investment Management—can better position themselves for tomorrow’s gains.
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1 Black Rock. 2025. https://advisor.zacksim.com/e/376582/stocks-underweight-and-unaware/5sndxr/1161199135/h/VLtq2YXm2Rfa8n9y687OZE2OFHPBjPenlz9ruOK-XeA

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.

Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.

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The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.

The Russell 1000 Growth Index is a well-known, unmanaged index of the prices of 1000 large-company growth common stocks selected by Russell. The Russell 1000 Growth Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

Nasdaq Composite Index is the market capitalization-weighted index of over 3,300 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks, as well as limited partnership interests. The index includes all Nasdaq-listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debenture securities. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

The Dow Jones Industrial Average measures the daily stock market movements of 30 U.S. publicly-traded companies listed on the NASDAQ or the New York Stock Exchange (NYSE). The 30 publicly-owned companies are considered leaders in the United States economy. An investor cannot directly invest in an index.  The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

The Bloomberg Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

The ICE Exchange-Listed Fixed & Adjustable Rate Preferred Securities Index is a modified market capitalization weighted index composed of preferred stock and securities that are functionally equivalent to preferred stock including, but not limited to, depositary preferred securities, perpetual subordinated debt and certain securities issued by banks and other financial institutions that are eligible for capital treatment with respect to such instruments akin to that received for issuance of straight preferred stock. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

The MSCI ACWI ex U.S. Index captures large and mid-cap representation across 22 of 23 Developed Markets (DM) countries (excluding the United States) and 24 Emerging Markets (EM) countries. The index covers approximately 85% of the global equity opportunity set outside the U.S. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

The Russell 2000 Index is a well-known, unmanaged index of the prices of 2000 small-cap company common stocks, selected by Russell. The Russell 2000 Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

The S&P Mid Cap 400 provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500, is designed to measure the performance of 400 mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment.

The S&P 500 Pure Value index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest value characteristics by using a style-attractiveness-weighting scheme. An investor cannot directly invest in an index.  The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

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