lawman
Thinks s/he gets paid by the post
Thanks guys...I have work to do...
Filling Income Brackets to Avoid IRMAA
- Thread starter lawman
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SecondCor521
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
USGrant1962
Thinks s/he gets paid by the post
Out-to-Lunch
Thinks s/he gets paid by the post
If you are over 59.5, but your oldest Roth was opened less than 5 years ago, you can still withdraw, free of tax and penalty, all of your contributions and conversions. Only your earnings would be taxed, but there is no penalty.
The way they determine "contributions, conversions and earnings" is that your withdrawals are ordered. Your first withdrawals are deemed to count against contributions. After your withdrawals exceed your contributions over the years, they are deemed to count against conversions. After that is exhausted, finally, you are deemed to be withdrawing earnings. Very unlikely, IMHO, that one would encounter the tax after 59.5.
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Sunset
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
If your old Roth is older than 5 years, you can forget about any 5 year rule. Even if you open a new Roth and put the money in it, o ruse the old Roth.
SecondCor521
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
And if you are over 59.5.
I am under 59.5 and my oldest Roth is over 5 years old. However, I must still track the 5 year rule related to conversions.
Sunset
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Right, I was responding to lawman who is over 59.5
Good of you to point it out for the young'uns
Koolau
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
USGrant1962
Thinks s/he gets paid by the post
Trust me. They've already thought of this.
Yea, adding "tax free" income like Roth withdrawals to MAGI calculations would be a sneaky/great way to increase stealth taxes* like IRMAA, SS taxation levels, and NIIT. They already add back "tax exempt" items like muni bond interest, so not a big leap.
*a term from retirement guru Bob Carlson.
IRMAA isn’t a tax, it’s a reduction of a subsidy.
USGrant1962
Thinks s/he gets paid by the post
IRMAA calculation is derived from IRS Form 1040, you know, a tax return. And the amount is based on your tax return MAGI and your tax filing status - single, MFJ, MSF. You can kid yourself all you want but it is part of our tax system - the very definition of a stealth tax. It is unfortunate that Congress has entwined health care with the income tax system, but it is a fact.
You show how it is calculated, not what it is. IRMAA is a percentage of the Medicare premium. To sum, tax data is used to determine how much the subsidy should be reduced. That last part is hyperbole. Let’s move on and stop the thread hijack.
BubbaChris
Recycles dryer sheets
lawman,
Two lines of thoughts: first, congratulations on wanting to do your homework now to minimize your IMRAA impact later. I don’t begrudge you that at all.
Second, when I last evaluated 2022 IRMAA tiers for MFJ, the jump in costs into the second tier were roughly $1,500. Which was also roughly a 1% increase in effective tax rate. But it’s also a rounding error for dining out costs for many people at that income level. So is that $1,500 worth the work to avoid it?
Best regards,
Chris
Two lines of thoughts: first, congratulations on wanting to do your homework now to minimize your IMRAA impact later. I don’t begrudge you that at all.
Second, when I last evaluated 2022 IRMAA tiers for MFJ, the jump in costs into the second tier were roughly $1,500. Which was also roughly a 1% increase in effective tax rate. But it’s also a rounding error for dining out costs for many people at that income level. So is that $1,500 worth the work to avoid it?
Best regards,
Chris
Safe Harbour
Recycles dryer sheets
Try Analysis with Income Strategy
I have been using Income Strategy to figure all this stuff out for me. It's cheep $20 per month and will do like 50,000 different strategy tests in a single run to tell you the best way forward for you. It's worth the $20 per month. The reason I keep it going is that the best strategy changes slightly over time. But at least give it a one month trial. It figures out all the issues of different tax status accounts and distributions, SS, Medicare, different tax scenarios. There is no way you or any advisor can actually figure this out without software. Every case is very different with too many factors to consider. Etc.
I have been using Income Strategy to figure all this stuff out for me. It's cheep $20 per month and will do like 50,000 different strategy tests in a single run to tell you the best way forward for you. It's worth the $20 per month. The reason I keep it going is that the best strategy changes slightly over time. But at least give it a one month trial. It figures out all the issues of different tax status accounts and distributions, SS, Medicare, different tax scenarios. There is no way you or any advisor can actually figure this out without software. Every case is very different with too many factors to consider. Etc.
MSDalt
Dryer sheet wannabe
BubbaChris, clearing the 2nd to 3rd IRMAA hurdle by $1 would have increased a Medicare premium by $1,460/person for 2022. For a married couple that would be $2900+. In my opinion that is something to avoid.
Even if it takes me 10 hours to figure out how to avoid our IRMAA, my payback rate is $290+ per hour - tax free!
BubbaChris
Recycles dryer sheets
Thanks for the reminder that I should slow down when reviewing analysis I did months ago. With doubling the impact for MFJ, that’s still a 2% hit to effective tax rate. This assumes you end up well over the threshold for that next tier.
We’re still in the mode of managing MAGI for ACA credits, which are close to 10x the impact when compared to IRMAA.
Best regards,
Chris
audreyh1
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
In our case it’s generally IRMAA levels now (for 1 year) versus higher ongoing taxes in the future which could easily swamp the one year IRMAA sacrifice.
That takes a lot of work to figure out every year for us as our income is very unpredictable.
We pay IRMAA every year, it’s just a question of which tier. Just one of us on Medicare at this point.
For 2022 our taxable income dropped quite a lot and 2024 would have been the first year with no IRMAA. However, I took the opportunity to sell a couple of funds that tend to have higher distributions while the markets were down. So that put us in the first IRMAA category for 2024, still lower than any year so far. And reduces distributions generated by our taxable investments in the future.
That takes a lot of work to figure out every year for us as our income is very unpredictable.
We pay IRMAA every year, it’s just a question of which tier. Just one of us on Medicare at this point.
For 2022 our taxable income dropped quite a lot and 2024 would have been the first year with no IRMAA. However, I took the opportunity to sell a couple of funds that tend to have higher distributions while the markets were down. So that put us in the first IRMAA category for 2024, still lower than any year so far. And reduces distributions generated by our taxable investments in the future.
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Yes, going over any IRMAA cliff by $1 is something to avoid.
Whether it is Worth pushing through...IRMAA cliffs (i.e., going well beyond $1 over) is a different question.
MSDalt
Dryer sheet wannabe
We perform Roth conversions to fill the gap to the next (expected) IRMAA hurdle. It takes some work to track this, but the hourly wages for the work are good.
I expect nothing but higher tax rates in the future with the huge and growing Federal Deficit so Roth conversions are timely at this point.
