Bob’s Journal
Key Medicare Amounts for 2025 Are Set
The Centers for Medicare and Medicaid Services (CMS) announced the 2025 inflation-adjusted amounts for Medicare Parts A, B and D.
The base monthly premium for Part B will be $185.00, an increase of $10.30 (5.9%) from $174.70 in 2024. The premium is adjusted each year so that, based on the projected expenses of Medicare Part B, the premiums will pay 20% of the total expected costs.
Part B covers physicians’ services, outpatient hospital services, some home health services, durable medical equipment and some other services. Part A covers primarily hospital services.
The annual deductible for Part B will be $257 in 2025, up from $240 in 2024.
Also updated was the Medicare premium surtax (also known as the Income-Related Monthly Adjustment Amount or IRMAA) that is imposed on higher-income individuals.
CMS estimates that about 8% of Part B beneficiaries are subject to the surtax, paying both the base monthly Part B premium and the IRMAA.
A beneficiary can elect to have IRMAA deducted from Social Security benefits or be billed and pay the surtax directly to Medicare.
IRMAA for 2025 is based on modified adjusted gross income (MAGI) on tax returns filed in 2023. Different monthly surtaxes are imposed at different MAGI levels.
IRMAA begins when MAGI exceeded $106,000 in 2023 for single taxpayers and $212,000 for married taxpayers who filed jointly. The highest IRMAA is imposed on single taxpayers with MAGI of $500,000 or more and married taxpayers filing jointly with IRMAA of $750,000 or above.
The total monthly premium for those subject to IRMAA will range from $259.00 to $628.90.
The Part A deductible for a beneficiary admitted to a hospital in 2025 will be $1,676, an increase from $1,632 in 2024. The deductible is the beneficiary’s share of costs for the first 60 days of Medicare-covered inpatient hospital care.
After the 60th day, the beneficiary pays $419 per day through day 90 (compared to $408 in 2024).
Higher-income beneficiaries with Part D prescription drug policies also pay IRMAA in addition to the monthly premiums on the insurance policies.
For single individuals, the Part D IRMAA begins when MAGI exceeded $106,000, and the IRMAA is $13.70 per month until MAGI exceeded $133,000. The top Part D IRMAA of $85.80 per month is imposed on single taxpayers with MAGI greater than $500,000.
For beneficiaries who are married and filed joint returns with their spouses in 2023, the lowest Part D IRMAA of $13.70 per month is imposed when MAGI exceeded $212,000 and was no more than $266,000.
The top Part D IRMAA of $85.80 per month is imposed on a married beneficiary when IRMAA was $750,000 or more.
Medicare beneficiaries should receive letters in December informing them of their 2025 premiums and whether they are subject to IRMAA.
IRS Regulations Add a Twist to Some IRA Conversions
Taxpayers who must take required minimum distributions (RMDs) should know about a subtle change made in recent IRS regulations.
It always has been the rule that someone subject to RMDs can’t convert a traditional IRA to a Roth IRA until after the year’s RMD is taken from the traditional IRA.
Only the amount left in the IRA after the RMD can be converted.
In others words, the RMD first must be taken and included in gross income before a conversion can happen. The amount of the RMD isn’t included in the conversion and can’t be rolled over to a Roth IRA.
The twist in the regulations applies to taxpayers with multiple traditional IRAs who must take RMDs.
The assumption has been that such a taxpayer could take the RMD from the IRA for which the conversion is planned. Then, do the conversion from the amount remaining in the IRA. RMDs for the other traditional IRAs could be taken during the year whenever the owner wanted.
But the regulations say the aggregate RMD for all the IRAs must be taken before a conversion involving any of the traditional IRAs can occur.
It’s a timing issue, but it’s important to have the timing correct.
To determine the aggregate RMD, first separately compute the RMD for each IRA. Add all those RMDs to arrive at the aggregate RMD.
The aggregate RMD can be taken from the traditional IRAs in any ratio the IRA owners want. All of it can be taken from one IRA, in equal amounts from each of the IRAs, proportionally from each IRA, or some other pattern. The key is to be sure the aggregate RMD is taken before trying to convert any part of one of the traditional IRAs.
New in 2025: Super Catch-Up 401(k) Contribution for Select Taxpayers
Beginning in 2025, a small number of 401(k) participants can make additional tax-deferred contributions to their accounts under a provision in the SECURE Act 2.0.
A participant who is aged 60 to 63 can make an additional $3,750 catch-up contribution in 2025.
That amount is in addition to the maximum regular tax deferred contribution of $23,500 and catch-up contribution of $7,500 in 2025, creating a maximum total contribution of $34,750.
The opportunity is available to those who are age 59 now, because you qualify for the additional contribution if you turn 60 by December 31, 2025. On the other hand, if you turn 64 before December 31, 2025, you can’t make the additional contribution.
If the plan has a Roth 401(k) option, the participant can choose to put the additional money in either the traditional or Roth account.
The main problem for many who want to take advantage of the rule will be determining if their 401(k) plans allow the additional contribution and its systems are set up to handle it in 2025.
The Data
The Consumer Price Index (CPI) rose 0.2% in October, the same rate as in September. The CPI increased 2.6% for the 12 months through October and 2.4% through September.
The core CPI, which excludes food and energy prices, was up 0.3% in both October and September. Over 12 months, the core CPI increased 3.3% through both October and September.
The Consumer Sentiment Index from the University of Michigan increased to 73.0 in the first half of November (the highest level in seven months) from 70.5 at the end of October.
Sentiment about current conditions declined slightly while expectations improved to their highest level since July 2021. The survey was taken before election results were known.
The Small Business Optimism Index from National Federation of Independent Business (NFIB) increased to 93.7 in October from 91.5 in September. October was the index’s highest level in three months and second-highest level since February 2022.
But the percentage of business owners reporting higher sales in the past three months was at the lowest level since July 2020.
Consumer credit outstanding rose at an annual rate of 1.4% in September, a much lower increase than the two previous months.
Also in September, revolving credit (mostly credit cards) increased 2.8%, while non-revolving credit (mostly vehicle and student loans) rose 3.4%.
Productivity increased by 2.2% in the third quarter, according to the first estimate, a slight improvement from 2.1% in the second quarter. Output increased 3.5% in the third quarter while hours worked increased 1.2%.
A result of the productivity increase is that unit labor costs increased only 1.9% in the third quarter, down from 2.4% in the second quarter.
New unemployment claims increased by 3,000 to 221,000 in the latest week.
Continuing claims, which lag a week behind new claims, increased to 1.892 million from 1.853 million.
The Markets
The S&P 500 rose 3.50% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 4.05%. The Russell 2000 increased 5.90%. The All-Country World Index (excluding U.S. stocks) dropped 2.94%. Emerging market equities fell 4.15%.
Long-term treasuries lost 2.24% for the week. Investment-grade bonds decreased 0.62%. Treasury Inflation-Protected Securities (TIPS) declined 0.37%. High-yield bonds gained 0.25%.
On the currency front, the dollar U.S. dollar jumped 2.51%.
Energy-based commodities fell 3.21%. Broader-based commodities dropped 2.54%. Gold declined 5.27%.
Bob’s News & Updates
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