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How HECMs May Help Avoid Medicare Surcharges

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More Affluent Retirees May Find HECMs a Money Saver

It appears that the potential strategic applications of the Home Equity Conversion Mortgage in retirement are as limitless and creative as the professionals who embrace the product. Case and point: using a reverse mortgage to avoid Medicare high-income surcharges.

reverse mortgage newsA recent article in Investment News by Katy Votava brings to light an interesting twist for higher-income individuals. Why would those with considerable income and assets even consider a reverse mortgage? Beyond the flexibility of using the HECM line of credit to prolong their portfolio is the advantage of possibly eliminating costly Medicare high-income surcharges. That’s correct, if Uncle Sam determines you earn too much you get to pay more for your Medicare part B and D coverage and premiums with no additional benefits. The scale used to determine the income thresholds was recently modified lowering the top three tiers.

The surcharges uses the modified adjusted income or MAGI from the tax refund filed two years prior. This means that 2018 premium surcharges will be based on…

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  1. Since the Social Security Administration is estimating that only about 5% of all Medicare beneficiaries will be impacted by this change, are the proponents of this strategy jumping the gun?

    Going to competent financial/tax advisors with the strategy could have the impact of making us look like Chicken Littles. So while the immediate impact may be increased sales, the ultimate result could turn out to be just the opposite due to the potential damage to our image.

    Further the lure of substituting debt proceeds for taxable income just to reduce income taxes can be quite deceitful especially if the growth rate on the vehicle from which the taxable income is being taken is less than the growth on the HECM balance due.


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