Looking for advice on Roth conversion

[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]

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]

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]

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]

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]

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]

..
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.

 

[pb4uski]

^^^ No taxable account purchase lots with a greater than $300 loss?

 

[rkser]

I am preparing my taxes by myself for the first time, not using a CPA anymore.

I am curious how you prepare your yearly taxes ? Do you use Tax Prep Software, which one ? or hire a CPA ?

How do you do yearly tax planning eg Roth Conversions, Tax Loss Harvesting, etc ?


Thanks

 

[Sunset]

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.

You can't make some loss, by selling some stock ??
$300 is a small hurdle.

 

[SecondCor521]

I am preparing my taxes by myself for the first time, not using a CPA anymore.

I am curious how you prepare your yearly taxes ? Do you use Tax Prep Software, which one ? or hire a CPA ?

How do you do yearly tax planning eg Roth Conversions, Tax Loss Harvesting, etc ?

Thanks

See this thread for what people seem to be using (TurboTax and H&R Block are popular I think):

http://www.early-retirement.org/forums/f28/2019-tax-software-100896.html

As for tax planning, I have a number of Excel spreadsheets that I use to help with some calculations, but I do it mostly manually. Some people use online tools like iorp or income strategies.

 

[Dalmore]

With all the talk about Roth conversions, I have a question:

If I am 58 and don't have an Roth account and make a Roth conversion, that money is locked up for 5 years. If on the other had, I have a Roth account that was created when I was in my 40s, the money from that Roth conversion is available at 59 1/2.

 

[RunningBum]

With all the talk about Roth conversions, I have a question:

If I am 58 and don't have an Roth account and make a Roth conversion, that money is locked up for 5 years. If on the other had, I have a Roth account that was created when I was in my 40s, the money from that Roth conversion is available at 59 1/2.

https://fairmark.com/retirement/rot...ns/distributions-after-a-roth-ira-conversion/
seems to indicate that you can withdraw after penalty after 59 1/2 even if you haven't satisfied the 5 year rule.
https://fairmark.com/retirement/roth-accounts/roth-distributions/ is the starting page for Roth distributions.

 

[Midpack]

I am preparing my taxes by myself for the first time, not using a CPA anymore.

I am curious how you prepare your yearly taxes ? Do you use Tax Prep Software, which one ? or hire a CPA ?

How do you do yearly tax planning eg Roth Conversions, Tax Loss Harvesting, etc ?

See this thread for what people seem to be using (TurboTax and H&R Block are popular I think):

http://www.early-retirement.org/forums/f28/2019-tax-software-100896.html

As for tax planning, I have a number of Excel spreadsheets that I use to help with some calculations, but I do it mostly manually. Some people use online tools like iorp or income strategies.

I've used TurboTax for about 15 years and been very happy with it, not that there's anything wrong with others. TurboTax offers an interview style so you just answer questions and it prompts you for data, it uses all forms necessary for your situation and fills them out in the background. You can see any and all forms any time, or fill them in manually if you like. TurboTax can upload all your tax info from brokerages, banks, etc. IF you choose as well, or you can fill them in manually. TurboTax is highly evolved IME.

As for tax planning I have an Excel spreadsheet I use, but I use TurboTax for next year tax planning as well. E.g. I have my 2018 tax return file in TT2018, and another file that's my 2019 estimated return based on this years income. Not exactly right, but it's easy enough to look up changes in the tax law and account for those. If nothing else, a good way to double check any spreadsheet you develop - if your spreadsheet results are substantially different than TurboTax, you probably have a miscalc in your spreadsheet...

 

[RetireBy90]

You can't make some loss, by selling some stock ??
$300 is a small hurdle.

Started looking at that this morning. I may have some carryover losses from previous years.

 

[rkser]

WHEN do Vanguard Mutual Funds make their final dividend distributions ??

Is there a way to find their timeline, would we have enough time to make some Roth Conversions before the year end ? How can I find out the dates ?

Using the Turbo Tax 2019, in trying to project the year end Income & taxes, we have to make assumptions about the projected dividends & other calculations.
I am getting close to the higher margin of 22% Tax Bracket & MAGI is getting too close for comfort of the IRMAA line.

How do you (or would you) project reasonably close year end income ? Any pointers ?

Thanks in advance

 

[Gumby]

WHEN do Vanguard Mutual Funds make their final dividend distributions ??

Is there a way to find their timeline, would we have enough time to make some Roth Conversions before the year end ? How can I find out the dates ?

Using the Turbo Tax 2019, in trying to project the year end Income & taxes, we have to make assumptions about the projected dividends & other calculations.
I am getting close to the higher margin of 22% Tax Bracket & MAGI is getting too close for comfort of the IRMAA line.

How do you (or would you) project reasonably close year end income ? Any pointers ?

Thanks in advance

This might help. It is from the Vanguard website.

http://www.vanguard.com/pdf/FA116120_112019.pdf