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A Medicare Curveball Affects Tax Planning
Old 09-03-2007, 10:27 PM   #1
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A Medicare Curveball Affects Tax Planning

Medicare Part B Premium means testing started in 2007. Surcharges phase in over next few years. It appears that surcharges will depend on some form of AGI, perhaps adjusted by adding back non-taxable interest.

Dynamite waiting to blow up anyone sitting on large capital gains, or hoping to do Roth conversions. At the same time, another victory for those with good government or corporate health coverage.

http://www.tscl.org/NewContent/102589.asp

Here's another article that gives some planning possibilities for those not yet of Medicare age.

How To Limit Your Part B Premiums - Yahoo! News


I had planned to realize some large capital gains this year since my ordinary income is relatively low. But this Medicare Pt B surcharge amounts to another layer of tax that annoys me. It may be best to ignore it and go ahead, but I can't even get an absolutely certain look at the algorithm for figuring how the premium will change. It phases in at Adjusted AGI (adjusted up, not down!) of $80,000 for a single taxpayer, and steps up every at intervals above that amount. Threshold amounts are double this for married taxpayers.

Ha
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Old 09-04-2007, 05:25 AM   #2
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Thanks for the tip Ha.

I am not surprised. I expect more means tested impact on SS and Medicare via progressive fee/tax method.

I do not like it. But it is the likely thing to occur.

I am planning my Roth Rollover early enough to try to minimize tax impact; This is another reason to roll to a Roth. However, I suspect if enough people use the technique, the government will change the rules.
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Old 09-04-2007, 07:20 AM   #3
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I believe the way they are going to determine the premiums for Part B Medicare is based on your AGI TWO Years back. As an example next year (2008 premiums will be based the AGI reflected on you 2006 Income Tax Return. Additionally, I think I remember some exceptions for income peaks that would not be considered ordinary -- not too sure about that however. Except for the articles you referenced I have not been able to find out what the EXACT premium is going to be for 2008 and if they are making any changes in the calculations.
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Old 09-04-2007, 10:42 AM   #4
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OK, so I guess "tax-exempt" interest really isn't? Will muni prices head down to compensate?

This is the major reason I just can't bring myself to do the Roth-IRA thing, I just cannot trust that the government will "never" tax something that they aren't presently taxing given our deficits and grand plans for government funded programs.

I've always wondered whether the financial services industry could structure a program for seniors to tap their investment portfolios tax free by borrowing against them. Loan proceeds would be tax free (at least for now until too many people start doing it ha!) and would be paid back by the estate, kind of like a reverse mortgage.
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Old 09-04-2007, 11:02 AM   #5
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Quote:
Originally Posted by FinanceGeek View Post
I've always wondered whether the financial services industry could structure a program for seniors to tap their investment portfolios tax free by borrowing against them. Loan proceeds would be tax free (at least for now until too many people start doing it ha!) and would be paid back by the estate, kind of like a reverse mortgage.
This is quite easy to do within existing conditions, but there are several problems. One, interest rates are high unless you borrow huge amounts. But possibly more important, rates float with market conditions and collateral is marked to market every night.

So your risk can get huge; and you can get sold out during temporary market weakness.

This is one giant advantage that commercial or income producing owned property has over stocks- the ability to tap mortgage markets with fixed rate loans and collateral that is considered stable. This gives a tax free but relatively safe way to monetize gains in market value of holdings.

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Old 09-04-2007, 11:49 AM   #6
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Originally Posted by chinaco View Post
I am planning my Roth Rollover early enough to try to minimize tax impact; This is another reason to roll to a Roth. However, I suspect if enough people use the technique, the government will change the rules.
My expectation is that there will be some type of provisional income computation instituted for Medicare (just like there is for SS), and Roth withdrawals will be part of that provisional income.

I follow two basic principles when dealing with the Federal government:

(1) Never voluntarily pay taxes early - no Roth rollover for me

(2) Take money the government owes you as early as possible - SS at 62 for me
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Old 09-04-2007, 01:40 PM   #7
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I follow two basic principles when dealing with the Federal government:

(1) Never voluntarily pay taxes early - no Roth rollover for me

(2) Take money the government owes you as early as possible - SS at 62 for me
AMEN !!!
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Old 09-04-2007, 05:46 PM   #8
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Originally Posted by FIRE'd@51 View Post
My expectation is that there will be some type of provisional income computation instituted for Medicare (just like there is for SS), and Roth withdrawals will be part of that provisional income.

I follow two basic principles when dealing with the Federal government:

(1) Never voluntarily pay taxes early - no Roth rollover for me

(2) Take money the government owes you as early as possible - SS at 62 for me
Are Roth withdrawals included in the calculation of the SS Tax Torpedo?
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Old 09-04-2007, 06:02 PM   #9
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Are Roth withdrawals included in the calculation of the SS Tax Torpedo?
Not currently, but it wouldn't surprise me if in the future they were added to the provisional income calculation for SS, as well.
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