In 2005, when I was still working (I am now retired), my wife and I had an adjusted gross income of about $198,000 ($78,000 plus a $120,000 conversion to a Roth IRA). To set the means-tested Medicare Part B premiums in 2007, will the government use the $78,000 figure or the $198,000 figure? Also, will 2008 premiums be based on 2006 AGI and so on, or will premiums be determined some other way? -- Emil Kreider, Beloit, Wis.
Starting next year, in a move of almost seismic significance, Medicare will begin basing Part B premiums, which cover doctors' visits and outpatient services, on a recipient's income. And seniors like you are feeling the aftershock.
Couples with income of $160,000 or less in 2005, and single filers earning $80,000 or less, will pay $93.50 per month for Part B. But the monthly premium rises to $162 for individuals earning more than $200,000 and couples with income over $400,000.
Income figures are based on your 2005 adjusted gross income, which is line 37 of Form 1040, plus any tax-exempt interest shown on line 8b of your 1040, says Mark Lassiter, of the Social Security Administration. So, yes, that would include taxable IRA conversions such as yours, plus any taxable IRA distributions.
If you still think your premium is too high, you'll be able to file an appeal if your income was affected by a "life-changing event." Regulations to be issued soon will detail what circumstances qualify. Right now, "life changing" appears to refer to events such as marriage (or remarriage) or the death of a spouse, says Mark Luscombe, of tax publisher CCH.
The government is using 2005 income to calculate 2007 premiums because that's the most recent tax return on file. In 2008, Part B premiums will be based on 2006 income, and you can still lower your income for 2006. Selling stock for a loss, limiting IRA withdrawals to required minimum distributions, or donating some of your required IRA distributions to charity (if you're over 70#189;) could lower your adjusted gross income, says Luscombe (see Cut Your Tax Bill).
Good as gold
Are gold and silver bullion solid investments to protect against a weakening U.S. dollar? -- F.D., via e-mail
In a word, yes. Historically, gold rises in value when the dollar drops because investors perceive gold to have intrinsic value versus paper money.
But gold prices swing wildly. Global insecurity and demand from emerging markets sparked a rally that propelled gold to a 26-year high of $730 per ounce in May. By mid October the price had retreated to $589 per ounce. Silver shares some of gold's characteristics as a hedge against the dollar, but it trades more like an industrial commodity, says analyst Jeffrey Christian, author of Commodities Rising.