What are you doing about NIIT?

[MarieIG]

I can't eliminate NIIT but I am trying to reduce interest income outside IRAs as that results in the highest tax rates. Also I am slowly reinvest dividends into growth funds and have now eliminated funds in my taxable accounts which pay capital gains. I also pay taxes on Roth conversions from my taxable accounts.

 

[TheWizard]

I can't eliminate NIIT but I am trying to reduce interest income outside IRAs as that results in the highest tax rates. Also I am slowly reinvest dividends into growth funds and have now eliminated funds in my taxable accounts which pay capital gains. I also pay taxes on Roth conversions from my taxable accounts.

Similarly for me.
I only hold index funds in taxable, so no CGDs for me.
And I'm making progress in eliminating Ordinary Income (interest) from my taxable account by going to 99+% stock funds there.

As you say, growth funds like VGT, QQQ, MGK have less than half the dividends compared to VOO (S&P 500).

I may likely stop my small Roth conversions soon. We'll see...

 

[audreyh1]

I can't eliminate NIIT but I am trying to reduce interest income outside IRAs as that results in the highest tax rates. Also I am slowly reinvest dividends into growth funds and have now eliminated funds in my taxable accounts which pay capital gains. I also pay taxes on Roth conversions from my taxable accounts.

IRA income is not subject to NIIT.

Interest income in taxable accounts is considered investment income and thus subject to NIIT.

So it would make sense to receive your interest income in your tax-deferred accounts. I hadn’t thought about that. Of course it’s only been in very recent years that my taxable interest income increased significantly.

 

[JoeWras]

It's hilarious. Too much to keep track of. So I says to myself: "Joe, do a big blow out Roth conversion matched with a blow out donation to the DAF. This is your last year before IRMAA."

So I did.

Today I'm doing taxes, and whoops, I got slightly into NIIT territory. I simply forgot about the NIIT limit. I did modeling on TurboTax but didn't study every line. No big deal, that's why it is hilarious. Just irritating. We'll be keeping it under IRMAA from here on out, so until IRMAA limits catch up with NIIT, I only have to keep track of one thing.

My gut feeling is that Roth conversion isn't worth the NIIT hit. I suppose I could spend a week studying it and predicting the future, but heck with it. Just avoid it.

 

[Out-to-Lunch]

I tried to Roth-Convert to the top of the 22% bracket in 2025, but overshot by a little. My AGI was $9 over the NIIT limit. That subjected a small fraction of my already-very-small interest earnings to NIIT. The computed tax was less than $0.50, so it rounded down to $0.

 

[RetiredHappy]

We were hit quite a bit with NIIT for 2025, but plan not to go near it in 2026. Next year we have an expensive trip coming up and we will need to pull an additional $50K to fund the trip, and will use a mix of taxable and IRA to fund it. Also as RMD grows, there is no way to avoid NIIT for 2027 and beyond.

 

[JoeWras]

I tried to Roth-Convert to the top of the 22% bracket in 2025, but overshot by a little. My AGI was $9 over the NIIT limit. That subjected a small fraction of my already-very-small interest earnings to NIIT. The computed tax was less than $0.50, so it rounded down to $0.

Well my NIIT hit was quite a bit more than that, but not too much that I can't chuckle at my mistake.

 

[TheWizard]

We were hit quite a bit with NIIT for 2025, but plan not to go near it in 2026. Next year we have an expensive trip coming up and we will need to pull an additional $50K to fund the trip, and will use a mix of taxable and IRA to fund it. Also as RMD grows, there is no way to avoid NIIT for 2027 and beyond.

I paid $46 of NIIT for 2025.
I'm not quite sure what my plan is going forward.
I only did a $17,000 Roth conversion for 2025, so if I wanted to reduce or eliminate paying NIIT, I have two options:
1) reduce or stop doing Roth conversions
2) increase my QCDs

My total RMD liability is around $40,000 for this year and I'm QCDing only about 20% of it presently, so I should probably come up with a plan...

 

[Out-to-Lunch]

Well my NIIT hit was quite a bit more than that, but not too much that I can't chuckle at my mistake.

I have to admit that in 2024, I converted to the top of the 24% bracket, so well over the NIIT limit. I also bought and sold a house, so I had gobs of cash in a money market account for a few months (and therefore not-insubstantial interest income). I was quite caught off guard about NIIT when I sat down with Turbotax later....

 

[JoeWras]

I was quite caught off guard about NIIT when I sat down with Turbotax later....

Yeah, my reaction to looking at my fresh 1040 a few hours ago. "Line 23, what the bleepin' bleep is this?"

 

[TheWizard]

Because the NIIT thresholds are fixed at $200k/$250k, higher income retirees will eventually get above those thresholds due to inflation. Resistance is mostly futile.

One thing to do is to hold only stock index funds in your taxable account, yielding mostly Qualified dividends. So instead of being taxed at 15%, those Qdivs above NIIT are now taxed at 18.8%.
Not the end of the world.

OTOH, if you hold mostly interest-bearing investments in taxable, that gets taxed as Ordinary Income, at the 24% marginal rate in my case. Then with NIIT, up to 27.8% which is much less fun...

 

[GenXguy]

Because the NIIT thresholds are fixed at $200k/$250k, higher income retirees will eventually get above those thresholds due to inflation. Resistance is mostly futile.

And a greater percentage of people without such high income will get caught up by it as years pass. These non-indexed incomes in the tax laws are problematic.

 

[TheWizard]

And a greater percentage of people without such high income will get caught up by it as years pass. These non-indexed incomes in the tax laws are problematic.

I tend to agree, but here are some related issues.
Median household (MFJ?) income presently is apparently $65k to $80k depending on location and who you believe.
So it's going to be a WHILE before inflation boosts that median up to $250k.

As a general rule, I'm pretty sure that folks at or below median income don't generally have significant taxable accounts or rental properties, hence minimal exposure to NIIT once inflation puts them over the threshold...

 

[GenXguy]

I tend to agree, but here are some related issues.
Median household (MFJ?) income presently is apparently $65k to $80k depending on location and who you believe.
So it's going to be a WHILE before inflation boosts that median up to $250k.

As a general rule, I'm pretty sure that folks at or below median income don't generally have significant taxable accounts or rental properties, hence minimal exposure to NIIT once inflation puts them over the threshold...

Yeah, we're not getting down to median anytime soon but just scooping up more people.

 

[sdawson]

As I am entering Roth Conversion time, my goal is to keep my income, including the conversions, below the 250K threshold each year and spread out the conversions over many years.

In the State of Oregon, it is also important to stay below that threshold for the federal tax deduction on Oregon Income income tax (state tax is 8.75%). So not only is one hit with NIIT, one also gets hit by Oregon --- paying state taxes on the federal taxes.

 

[Ronstar]

Thanks to OP for starting this thread. Serves as a reminder that I need to look deeper into this. No NIIT or IRMAA here yet, but they become almost certain in 2028 when DW and my RMDs kick in.

 

[HarveyS]

What am I doing about NIIT? Begrudgingly paying it.

 

[NW-Bound]

What am I doing about NIIT? Begrudgingly paying it.

Yes. Oh well. Perhaps the market will crash hard and I will not have much money left to worry about Roth conversion and RMD. Problem solved.

 

[NomDeER]

3) stop doing additional Roth conversions to the extent they push you/me further into NIIT territory. I already have a good sized Roth that I'll likely never deplete.

This may not be a good approach for some people. It might actually increase their chances of paying NIIT when they do have to withdraw from their tIRAs, especially if NIIT triggers are not adjusting with inflation. (That could also be an issue for some beneficiaries.)

For a variety of reasons, I don't want to convert a ton of assets to Roth, but if the market goes down a lot more this year, I might convert a bunch this year and hit NIIT territory for the first time. It probably would be better than converting in a few years when I'll have IIRMA issues and the market may be higher.

 

[socca]

What am I doing about NIIT? Begrudgingly paying it.

I paid 5 figures of NIIT for the 2025 tax year. I don't have enough healthy years left to spend any time worrying about it. I have some relatives who pay NIIT and probably don't even notice.

 

[Surewhitey]

We got hit last & this year. Would have gotten a few bucks back if not for it. Maxing the 401ks, HSA & SEP 401k profit is our only weapon. I'll look more at loss harvesting next year.

Between the extra Medicare 1.45 & NIIT, we had the privilege of paying an extra $1500...

 

[audreyh1]

We got hit last & this year. Would have gotten a few bucks back if not for it. Maxing the 401ks, HSA & SEP 401k profit is our only weapon. I'll look more at loss harvesting next year.

Between the extra Medicare 1.45 & NIIT, we had the privilege of paying an extra $1500...

At least when you stop working (having earned income) that extra Medicare goes away, plus any FICA.