Originally Posted by engr
I am 67 years old and retired. I have approx 800k in traditional Ira accounts along with some monies in after tax and Roth accounts. Everything I read says to withdraw from investment accounts first followed by traditional iras and lastly Roth accounts. Seems to make sense as the idea is to let the tax deferred account continue to grow tax free and the tax rates for capital gains is lower. However, if I leave my traditional Ira account untouched when I get to age 72 I will be forced to take a large Rmd withdrawal. Since my wife and I are lucky to have pensions this rmd will position me above the threshold for having to pay Medicare IRMAA surcharges (approx 174K). This year I used the traditional Ira account for withdrawals to try to reduce my total amount. I know this seems to go against the usual order of taking withdrawals but I don’t want to get stuck with having a large AGI which triggers the Medicare surcharges. Also, when I turn 70 my social security will just make matters worst. Does anyone have suggestions to minimize/eliminate the surcharges. Thanks for any ideas.
So reading between the lines, it sounds like you are already in the 22% tax bracket before any RMDs. I would consider being aggressive with Roth conversions from now until you are 72... at least to just below the IRMAA base tier maximum or perhaps to the top of the 22% tax bracket, or maybe even to the top of the 24% tax bracket.... and in all cases pay the tax with taxable account money.
It will be expensive... 22-24% of the amount converted plus the IRMAA Part A and Part D if you go beyond the IRMAA base tier level.
These conversions will be costly, but many think that tax rates will be higher later and if one of you pass on then the survivor will have a very high marginal tax rate on RMDs.