Medicare is a government program that’s designed to help make paying for health care easier for eligible Americans. You can apply for Medicare the year you turn 65, though it’s also possible for certain younger people to qualify. If you’re set to inherit money from aging parents or anyone else, you may be wondering if your inheritance will affect your Medicare benefits. The short answer is no, but receiving a financial windfall could affect what you pay for coverage. Receiving an inheritance can have other affects on your personal finances, so it may be a good idea to speak with a financial advisor. Try using SmartAsset’s free advisor matching tool to find advisors that serve your area.
Medicare Eligibility
Medicare eligibility is based on age, illness and/or disability status rather than income. Inheriting money or receiving any other windfall, such as a lottery payout, does not bar you in any way from receiving Medicare benefits. An inheritance won’t prevent you from receiving Social Security retirement benefits or Social Security disability benefits either.
Generally, you’re eligible for Medicare benefits if you:
Medicare Part A
Medicare Part A is hospital insurance while Medicare Part B is medical insurance. You can qualify for premium-free Medicare Part A if you’re 65 or older and you or your spouse worked and paid Medicare taxes into the system for at least 10 years.
You can also get Medicare Part A when you turn 65 with no premiums if you:
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Receive Social Security or Railroad Retirement benefits
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Are eligible to receive these benefits but just haven’t filed for them yet
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Had Medicare-covered government employment
Medicare Part B
Medicare Part B has a monthly premium as well as a deductible and coinsurance. For 2022, the standard monthly premium for Medicare Part B is $170.10. The annual deductible is set at $233. After meeting the deductible, recipients are responsible for paying 20% of the Medicare-approved amount for doctor services, outpatient treatment and durable medical equipment.
Understanding the various costs is important if you have an inheritance coming your way, as that money could affect what you pay for Medicare Part B.
Inheritance and Medicare Part B Premiums
When you’re covered by Medicare Part B, your monthly premium is determined by your tax filing status and modified gross adjusted income (MAGI). In 2022, single filers with a MAGI less than or equal to $91,000 and married couples filing a joint return with a MAGI less than or equal to $182,000 would qualify for the $170.10 standard monthly premium.
If you’re claiming Social Security benefits and your Medicare Part B premiums are deducted from your Social Security payment, it’s possible that inheriting money could affect your premium amount. When your modified adjusted gross income is above a certain amount, you’ll pay the standard premium plus an Income Related Monthly Adjustment Amount (IRMAA). This is essentially a premium that’s added to your premium. For 2022, the maximum you could end up paying monthly for Medicare Part B is $578.30.
This is important to understand if you’re having your Part B premiums deducted from your Social Security benefits. A higher premium means a lower monthly payment from Social Security. This would only be temporary, however, as the lookback period is your tax return from two years ago. So if you were to receive an inheritance in 2022, for instance, that could affect the Medicare Part B premiums you pay for 2024.
Inheritance and Medicaid
Medicaid is also a government program that provides financial assistance with paying for health care. This program covers certain groups of individuals, including:
Medicaid is administered at the state level and states can extend eligibility to other people, including seniors. Specifically, Medicaid can cover low-income seniors who are also enrolled in Medicare. The difference between Medicaid and Medicare, however, is that Medicaid does take income and financial resources into account when determining eligibility.
If you receive an inheritance while receiving Medicaid, you could be ineligible for benefits. An inheritance will count as income in the month it’s received and you have to notify Medicaid that you’ve received it. If the inheritance puts you over your state’s income eligibility limits then you’d lose your Medicaid eligibility for that month. You could regain eligibility for the next month if you’re able to spend down the entire inheritance in that period. If you’re not able to spend it all down by the next month, any remaining amount would be counted as assets for Medicaid eligibility.
Is an Inheritance Taxable?
Inheritances themselves are not considered to be taxable income by the IRS. This is true whether you’re inheriting cash, property or investments. The earning on any assets you inherit would be taxable, however, unless the asset itself is tax-free.
If you know that you’ll receive an inheritance from someone it may be worthwhile to talk to them about the best way to transfer those assets while they’re still living. For example, they may be able to set up a trust which would allow them to pass on assets to you or other heirs while minimizing estate and inheritance taxes.
You might be wondering if you can disclaim an inheritance to avoid the issue altogether if you’re worried about Medicare or Medicaid eligibility being affected. Disclaiming an inheritance allows you to pass it on to the next heir in line. If you’re on Medicaid already and try to refuse an inheritance, you could lose eligibility, as it violates the lookback rule. Talking to a financial advisor or Medicaid planning expert can help you avoid a potentially costly mistake.
Bottom Line
Will inheritance affect my Medicare benefits? It won’t hurt your eligibility to receive benefits but it could affect what you pay, depending on whether you’re already receiving Social Security benefits and your modified adjusted gross income. It’s also important to note that if you plan to apply for Medicaid to help pay for long-term care, an inheritance could affect your ability to qualify.
Tips For Retirement Planning
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When getting started with retirement planning, it pays to have someone who knows your financial situation. A financial advisor may be able to help. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Retirement planning is easier when you have resources at your disposal to help. SmartAsset has a number of these resources, and they’re free to access on our website. Try using our free retirement calculator and get started saving today.
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