Quote:
Originally Posted by RoboVil
Another important item to consider is whether the increased income resulting from converting a traditional IRA into a Roth IRA is whether you will trigger an increase in traditional Medicare payments. The income trigger, IRMAA, is calculated a bit different from your taxable income though the change in Medicare fee lags 2 years behind your reported income.
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Although true, this example was specific with two SS income earners, married, and not the highest, but simple math fairly high for the example of the impact of a potential tax change
So lets run that IRMMA scenario:
back of the napkin/envelope concepts for those that need the reminder
SS Income: $72K
Status: Married
Converted IRA: 97K
Total IRMMA income: $169K
Current IRMMA married Threshold: $210K
IRMMA threat, minimal
EXCEPT
when your spouse passes away in the next 12 months, and in two years you are filing single with a two year loopback at married incomes
So then Pugchief mentioned financial taxable income,
OK, lets conceptualize it:
By including the financial income: In absolute terms, the $97K Roth conversion $ amount will push the filer into the next tax bracket, because it's a back of the envelope concept. In reality, with the financial constraint goal of staying in the lowest tax bracket, as stated in the conceptual example, the maximum IRA ROTH conversion will estimated lower by the amount of the financial income, hitting the maximum income at the top of the lowest tax rate bracket
For both cases, IRMMA penalty risk remains the same/identical.
The point of the example is: don't use old models when tax rates change, and have a strategy with your financial consultant about your specific strategy. .
The other is not to be scared of IRMMA without modeling the impact . . .
but also remember that the future is very uncertain, and most plans work until they don't, most times the reason is beyond your control, but that is the reality of future uncertainty. ..
as always, good luck out there. . we all will need it.