2021 IRA contributions

[dm]

My wife teaches a online class and made around $13,000 last year. I also took around $25,000 out of my IRA last year. I’m also getting SS and the wife has a pension.

Plugging numbers into turbo tax so far it looks like I’ll need to send them a bit more than normal.

I thinking about putting 13,000 into the 2021 to reduce this amount. $7,000 to hers and $6,000 to mine.

But I’ll probably have to take a little more out this year to cover the $13,000, but it will put off paying the taxes.

Does this make sense?

 

[SevenUp]

Yes.

If your wife's pay is documented by a W-2, the box 1 number (minus any box 11 amount) is what the two of you may contribute in total (subject to the $6K or $7K per person limit).

If her pay is documented by a 1099, her Schedule C net earnings, minus 1/2 self-employment tax, may be used.

See What Is Compensation? for more.

Your marginal tax rates for 2021 and 2022 would affect whether paying tax now or later is better.

 

[dm]

We are pretty much always going to be in the 22-24% range. I’m just delaying the payment.

 

[SevenUp]

We are pretty much always going to be in the 22-24% range.

Watch out for those IRMAA tiers.

 

[Sunset]

If you put it into a Roth, then it would get out of the tax race.

Once I realized we had enough in IRA's, I switched to just filling Roth's so we would have money to grow tax free, it didn't to me, make sense to get a deduction now and pay more later.

But individual numbers rule the game.

 

[dm]

Watch out for those IRMAA tiers.

That’s not a problem now, but when it gets down to one of us it won’t be avoidable. Hopefully nothing to worry about yet.

 

[SecondCor521]

That’s not a problem now, but when it gets down to one of us it won’t be avoidable. Hopefully nothing to worry about yet.

So you're under the 22% bracket now?

I'm single, but my understanding is that the first few IRMAA tiers end up being mini-brackets between the top of 22% and top of 24% for both Single and MFJ.

So for example, single brackets are (numbers approximated):

$89K top of 22%
$91K IRMAA tier 2 starts
$114K IRMAA tier 3 starts
$142K IRMAA tier 4 starts
$170K top of 24%

(If my understanding or RMD spreadsheet is wrong I'd very much like to know, so I'm pointing this out as much for me as I am to try to help you.)

 

[dm]

We are in 22% bracket now. Wife’s pension is 90k. So any withdrawals from the IRA or other income can bump us up. When it gets down to one of us we will definatly have to watch the IRMAA tiers.

When the minimum IRA withdrawals start it may not make a difference if there is only one of us then.

Not that it’s a bad problem to have, just looking to minimize cost.

 

[SevenUp]

So you're under the 22% bracket now?

I'm single, but my understanding is that the first few IRMAA tiers end up being mini-brackets between the top of 22% and top of 24% for both Single and MFJ.

So for example, single brackets are (numbers approximated):

$89K top of 22%
$91K IRMAA tier 2 starts
$114K IRMAA tier 3 starts
$142K IRMAA tier 4 starts
$170K top of 24%

(If my understanding or RMD spreadsheet is wrong I'd very much like to know, so I'm pointing this out as much for me as I am to try to help you.)

Numbers are approximately correct, but the bracket boundaries are based on taxable (i.e.., after the standard/itemized deduction) income while the IRMAA tiers are based on MAGI for Medicare premiums (IRMAA tiers).

 

[SecondCor521]

Numbers are approximately correct, but the bracket boundaries are based on taxable (i.e.., after the standard/itemized deduction) income while the IRMAA tiers are based on MAGI for Medicare premiums (IRMAA tiers).

Ah, thank you! I think my RMD spreadsheet might be broken in this case then.

I knew the brackets were different sets of brackets between income brackets and IRMAA brackets, but I'm fairly confident (going off memory here) that I'm using the same income number for both, so one is approximately right and the other is off by the standard deduction amount.

Off to investigate my spreadsheet this afternoon and patch it up...