Looking for advice on Roth conversion

[rkser]

I want to do more Roth Conversion, upto max 22% Tax Bracket if feasible & keep income below $170k to prevent medicare premium surcharge.

Help me calculate this year projected taxable income, so to get a good idea of how much to convert.

Married filing Jointly, both retired, will be paying Roth Conversion Taxes from Taxable Funds.

Have converted to Roth so far = $ 60k
Total Dividends Projected = $ 65k
Cap Gains LT = $ 4k
Bank CD income projected = $ 10k
__________
$ 139000

Standard Deduction = $24400
Home Property Tax = $ 4500
___________
Deductions =$ 28900

Taxable Income = !39000 minus 28900 = $110100

No Mortgage
No Student Loan
No Debt
No Dependents

Projected Tax Exempt Tax = $32000

MAGI = 110100 + 32000 = $ 142100

$168400 (22% max) minus-110100 = $58300

Do I have room of approximately $58000 to convert into Roth ?

Where am I going wrong ?

- If I buy 2019 Turbo Tax Premier CD (1st time user) now, will I have access to a CPA starting now ??

Thanks in advance

[RetireBy90]

I believe your figures for deductions should be only standard $24,000 without adding in the mortgage.

[RetireBy90]

That would leave about $53,000 for conversion. However I’m doing same math right now and will leave about $5K room for anything I forgot to include as income.

[rkser]

"I believe your figures for deductions should be only standard $24,000 without adding in the mortgage."

There is no mortgage to be paid,
The $4500 is the property Tax Which I thought was deductible.

[SecondCor521]

Quote:

Originally Posted by rkser "I believe your figures for deductions should be only standard $24,000 without adding in the mortgage." There is no mortgage to be paid, The $4500 is the property Tax Which I thought was deductible.

It usually is, but only if you itemize. Normally people only itemize if the total of their itemized deductions exceed the standard deduction. So since your $4,500 is less than the $24,400 standard deduction, you wouldn't itemize (usually) and would just take the standard deduction. So it's sort of an either/or kind of thing.

See IRS instructions for Schedule A.

[Sunset]

I thought Medicare MAGI , was Federal MAGI with some things like tax free interest added back in, without subtracting out the standard deduction.

Am I wrong ??

[SecondCor521]

Quote:

Originally Posted by Sunset I thought Medicare MAGI , was Federal MAGI with some things like tax free interest added back in, without subtracting out the standard deduction. Am I wrong ??

If you're refering to MAGI, the "M" stands for Modified AGI, not Medicare AGI.

Several people here whom I trust have asserted that MAGI and how it is calculated can vary depending on the context in which it is being used to determine something. There is an ACA MAGI, for example, which is used to determine eligibility and amount of premium tax credits on Form 8962.

I'm going to stay away from the relationship between AGI and the standard deduction, because I recently made some comments on that which were in error.

[RunningBum]

Quote:

Originally Posted by Sunset I thought Medicare MAGI , was Federal MAGI with some things like tax free interest added back in, without subtracting out the standard deduction. Am I wrong ??

I don't know, but I assume all this is found in your tax return. I know for the ACA subsidy you can find the MAGI (Modified AGI) for that in a form, and play with adding or increasing income by type to see how and if it affects MAGI. I assume you can do the same thing with Medicare MAGI. So I use last year's tax program, or buy this year's program early, to test out questions I have like this.

[pb4uski]

Quote:

Originally Posted by rkser I want to do more Roth Conversion, upto max 22% Tax Bracket if feasible & keep income below $170k to prevent medicare premium surcharge. Help me calculate this year projected taxable income, so to get a good idea of how much to convert. Married filing Jointly, both retired, will be paying Roth Conversion Taxes from Taxable Funds. Have converted to Roth so far = $ 60k Total Dividends Projected = $ 65k Cap Gains LT = $ 4k Bank CD income projected = $ 10k __________ $ 139000 Standard Deduction = $24400 Home Property Tax = $ 4500 ___________ Deductions =$ 28900 Taxable Income = !39000 minus 28900 = $110100 No Mortgage No Student Loan No Debt No Dependents Projected Tax Exempt Tax = $32000 MAGI = 110100 + 32000 = $ 142100 $168400 (22% max) minus-110100 = $58300 Do I have room of approximately $58000 to convert into Roth ? Where am I going wrong ? - If I buy 2019 Turbo Tax Premier CD (1st time user) now, will I have access to a CPA starting now ?? Thanks in advance

Also, keep in mind that the 2020 IRMAA adjustments are based on your 2018 tax return... so we're sort of talking about your 2021 IRMAA adjustment.

I get that you are already over by $1,000.... biggest difference is that deductions are not recognized in calculating MAGI. Assumes that $65k of dividends does not include $32k of tax exempt interest... if it does then adjust for that as well.

$139k current income + $32k tax-exempt interest = $171k MAGI... $1k over the $170k 2020 IRMAA first tier for a married couple.

You might want to cross your fingers that your $65k of estimated dividends or $10k of bank projected income comes up $1k short.

OTOH, if the $65k of dividends includes the $32k of tax-exempt income the you have headroom of $30,999.... $170k-$139k-$1.

If you are going to be over the $170k then you might as well convert more because you'll be subject to the IRMAA increases whether you are $1 over or $43,999 over.

[rkser]

You are correct pb4uski I just realized that,

Although my taxable income has room to do Roth Conversion, my MAGI is around $171k

I will turn 65 in 2021 & the Medicare Premium will have a surcharge of around $800/yr.

I just hope the projections will be a $1000 less.

They will not let me correct my above post to make AGI 139k +32k =MAGI $ 171000

Does the number of 170000 hopefully increase incrementally by yr 2021 ?

[pb4uski]

What you might be able to do even if you are over is appeal and provide proof that your income will be lower.

[rkser]

Also I just remembered we have some non deductible IRA contributions which have to be prorated to decrease the taxable amount of roth conversion a little less, hopefully it will decrease by $1k

[kaneohe]

Quote:

Originally Posted by Sunset I thought Medicare MAGI , was Federal MAGI with some things like tax free interest added back in, without subtracting out the standard deduction. Am I wrong ??

There are multiple Federal MAGIs depending on the context. They have to do with income, not standard deductions, but there may be "adjustments" included
("above the line" deductions like the IRA deduction).

[RetireBy90]

Interesting that WSJ today has an article on point here, that is tiny tax differences can yield big Medicare savings or costs. Says MAGI on line 7 of 1040, adding back in tax free. For MFJ income
less than $174K cost is $144.60,
$174K - $218K is $202.40 plus $12.20 part D
$218K - $272K is $289.20 plus $31.50 part D
$272K - $326K is $376.00 plus $50.70 part D

So you can see an extra $1 in conversion could cost. They also make point that for 2020 there is a inflation adjustment reflected in above numbers so check two times.

[rkser]

RetireBy90,

I am trying to understand your last post. Please correct my understanding.I do not have access to WSJ

"If MAGI is less than $174k a Standard Premium for Medicare Supplement + standard premium for Part D.
This increase in the cut off MAGI reflects the inflation adjustment."

I turn 65 in 2021 & I understand they will use my MAGI on 2019 taxes to set the medicare premiums for 2021.
My MAGI this year is estimated / projected at around $171k, how will it effect me ?

Thanks

[RetireBy90]

Quote:

Originally Posted by rkser RetireBy90, I am trying to understand your last post. Please correct my understanding.I do not have access to WSJ "If MAGI is less than $174k a Standard Premium for Medicare Supplement + standard premium for Part D. This increase in the cut off MAGI reflects the inflation adjustment." I turn 65 in 2021 & I understand they will use my MAGI on 2019 taxes to set the medicare premiums for 2021. My MAGI this year is estimated / projected at around $171k, how will it effect me ? Thanks

rsker - not trying to be an expert, only sharing what I found in the WSJ. My understanding is that if line 7 on 1040 plus any tax free (like munis) is 174K or less than there won't be any IRMAA due. No idea if there will be an inflation adjustment for 2011. If your line 7 plus tax free is $174K or less for 2019 taxes then you should not see any impact for 2021 Medicare rates.



DW went on Medicare in 2018 and they used my 2016 return to figure IRMAA. 2016 was an unusually good year for my income and I was able to send in 2017 tax return to show and they adjusted the IRMAA to reflect 2017 MAGI. Just in case you have a very good year for income and don't expect it to continue for 2020.


Edited to add: along with brackets increasing, it appears Medicare and IRMAA amounts have also increased for 2020.



Please remember my first comment, only reporting what I read, hopefully faithfully

[Sunset]

Quote:

Originally Posted by RetireBy90 .. DW went on Medicare in 2018 and they used my 2016 return to figure IRMAA. 2016 was an unusually good year for my income and I was able to send in 2017 tax return to show and they adjusted the IRMAA to reflect 2017 MAGI. Just in case you have a very good year for income and don't expect it to continue for 2020. ....

When I quickly read the Medicare rules, it said if you had certain reasons for income change (like sold a business) that they could adjust the view to a more recent tax return that didn't have that income bump.

Was your unusually good year, just by great investment, or roth conversion income increases, or did you sell a business or rental properties ??

[RetireBy90]

We did 3 months of strike duty, 14 hour days, 6-7 days a week. With the overtime it worked out to pay for 96 hours a week or so. That meant 2 1/2 times my normal check. Was sweet for about 2 weeks then got old fast

[rkser]

Thank you Retireby90,

I appreciate you taking the time to explain what you read in WSJ article.
I see the possibility of escaping the Medicare Premium Surcharge.
We will see how the income tallies at the end of the year.

I will sit tight this year & look into more roth conversions next year.

Thanks again

[RetireBy90]

I am about $300 into next Level of IRMAA due to some assets I inherited this year, so I figure probably best to add some to my conversion this year since I’m already over the line.