Two key deadlines are approaching for some federal employees and retirees.
The first deadline is for those employees and retirees born between July 1, 1949 and December 31, 1949, and who are the owners of traditional IRAs and/or former qualified retirement plan (401(k), 403(b), or 457 retirement plans) participants. They have a deadline of April 1, 2022 to take their first required minimum distribution (RMD) from their traditional IRAs and/or any of qualified retirement plans they had previously participated in.
The second deadline is for any federal retiree past age 65 who did not enroll in Medicare Part B when they were first eligible. March 31, 2022 is the end of Medicare’s current General Enrollment Period (GEP) which started January 1, 2022. During a GEP, any individual eligible to enroll in Medicare may do so. This column discusses in more detail these two deadlines.
April 1, 2022 Deadline for Individuals Born During the Last Six Months of 1949 to Take Their First RMD
Prior to the passage of the SECURE Act in late 2019, any traditional IRA owner or qualified retirement plan owner (including Thrift Savings Plan participants) had to take their first RMD no later than April 1 following the year they became age 70.5. With the passage of the SECURE Act, effective Jan. 1,2020 the law changed.
Effective Jan. 1,2020, any individual born after June 30,1949 and who owns a traditional IRA and/or was a qualified retirement participant must take his or her first RMD no later than April 1 following the year they become age 72. This means that any individual born during the last 6 months of 1949 became age 72 between July 1,2021 and December 31,2021, and therefore has a deadline of April 1,2022 to take his or her first RMD. Note that the TSP was not included in the list of qualified retirement plans subject to the RMD deadlines. This is because while the TSP is subject to the RMD rules and therefore federal retirees with TSP account must follow the RMD rules with respect to RMD deadlines, the TSP will never allow a TSP participant to miss an RMD deadline.
The reason the TSP will never allow a retired TSP participant to miss a TSP RMD deadline is that had the TSP participant not taken his or her annual RMD within one month of the deadline, then the TSP would have sent the TSP participant (or directly deposited) a check for the RMD amount within one month of the deadline.
Any retired federal employee born during the last six months of 1949 and who has not taken his or her first TSP RMD by March 1, 2022, then no later than March 12,2022 the retired employee would have had their first year TSP RMD check mailed to him or her, or the RMD amount would have been deposited into their bank account by March 12, 2022.
This is likely not the case if a federal employee or retiree has traditional IRAs or qualified retirement accounts. He or she in most cases must request a RMD payout from their IRA custodians or retirement plan administrator, in this case no later than April 1, 2022. The IRS penalty for missing or not taking the full RMD is 50 percent of the deficit. Therefore, any affected federal employee who has not taken their first year RMD has about a week to do so.
Final Chance for First Quarter 2022 Original Medicare (Medicare Parts A and B) Enrollment and Changes
Most federal retirees enroll in Medicare Part A (Hospital Insurance) and Medicare Part B (Medical Insurance) during their initial enrollment period (IEP). The IEP spans a seven-month period that begins three months prior to the month an individual becomes age 65 and ends at the end of the third month after the month the individual becomes age 65. However, not every federal retiree signs up for Medicare during his or her IEP for a few reasons explained below.
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Fortunately, those federal retirees who miss their seven-month IEP Medicare enrollment window can enroll during a GEP. The current GEP started January 1,2022 and will end on March 31, 2022. For those who enroll in Medicare during the GEP, Medicare Part A and Medicare Part B coverage will become effective on July 1, 2022.
But individuals who enrolled in Medicare Part B during the GEP may be subject to late enrollment penalties, unless they qualify for an exception such as coverage under a workplace group health insurance plan (such as the Federal Employees Health Benefits health insurance plan).
There is no late enrollment penalty for Medicare Part A because almost individuals do not pay a monthly premium for Medicare Part A. But there is a late enrollment penalty for Medicare Part B equal to 10 percent for each full 12-month period without the Medicare Part B coverage that could have started earlier. The following examples illustrate:
Example 1. Paul retired from federal service in 2018 at the age of 62. Three years later in January 2021, Paul became age 65. His IEP for enrolling in Medicare Part B started October 1,2020 and ended April 30, 2021. Paul did not enroll in Medicare Part B during his IEP but instead enrolled in March 2022 during the GEP. Paul’s Medicare Part B enrollment will become effective July 1,2022, 14 months after his IEP ended. Paul will be subject to a 10 percent Medicare Part B late enrollment penalty (10 percent of the 2022 Tier 1 Medicare Part B monthly premium for Medicare Part B during 2022 – $170.10, or 10 percent of $170.10 rounded down to $17 per month). Paul will have to pay an additional $17 per month in Medicare Part B premiums for the rest of his life.
Example 2. Sharon retired from federal service in 2018 at the age 62. She became age 65 in July 2021. Her IEP for enrolling in Medicare Part B began April 1,2021 and ended October 31, 2021. Sharon did not enroll in Medicare Part B during her IEP but rather in March 2022. Her enrollment in Part B will become effective July 1, 2022, 8 months after her IEP ended. Since it has not been at least 12 months between the end of Sharon’s IEP and her July 1,2022 Medicare Part B effective enrollment date, Sharon will not be subject to a 10 percent Medicare Part B late enrollment penalty.
As mentioned above, there are exception to Medicare Part B late enrollment penalties. One such exception is for an individual working at age 65 and being covered by an employer-sponsored group health insurance plan covering at least 20 full-time employees. An example of such a plan is the Federal Employee Health Benefits (FEHB) health insurance plan.
If a federal employee continues to work in federal service past age 65 and is enrolled in an FEHB health insurance plan, then the employee is not required to enroll in Medicare Part B until he or she retires. Most importantly, the employee will not be subject to a late enrollment penalty for Medicare Part B provided he or she enrolls during his or her Special Enrollment Period (SEP).
The SEP is an 8-month period starting the effective date of a federal employee’s retirement. For most employees, the effective date of an employee’s retirement is the first day of the next month following any day of a month an employee retires. A retired employee can enroll in Medicare Part B anytime during the SEP and not be subject to a Medicare Part B late enrollment penalty. The following examples illustrate:
Example 3. Charles retired from federal service at the age of 67 on Dec. 31, 2020. When Charles was age 65, he enrolled in Medicare Part A (Hospital Insurance). There is no monthly premium cost for Medicare Part A (assuming an individual has been paying the Medicare Part A Hospital Insurance payroll tax for at least 10 years). However, Charles did not enroll in Medicare Part B at the time he enrolled in Medicare Part A. This is because at age 65, Charles was in federal service and enrolled in an FEHB health insurance plan. In May 2021, about four months after he retired, Charles enrolled in Medicare Part B, and with no late enrollment penalty. This is because Charles enrolled during his SEP (January 1,2021 to August 31,2021).
The following example illustrates what happens when a retired employee does not enroll in Medicare Part B during his or her SEP and therefore must enroll during the GEP:
Example 4. Susan retired from federal service on Oct. 31, 2020 at the age of 68. When Susan was age 65, she enrolled in Medicare Part A but not Medicare Part B. This is because, at age 65, Susan was in federal service and enrolled in an FEHB health insurance plan. Susan did not enroll in Medicare Part B during her SEP (Nov. 1, 2020 through May 31, 2021). She instead enrolled in Medicare Part B in February 2022 during the GEP. Susan’s Medicare Part B coverage will become effective July 1, 2022. Since it will be more than 12 months between the end of Susan’s SEP (May 31, 2021) and the effective date of Susan’s Medicare Part B enrollment (July 1, 2022), Susan will be subject to a 10 percent Medicare Part B late enrollment penalty, (10 percent of $170.10, or $17), for the rest of her life.