Originally Posted by blueash (Post 2265854)

You're not buying Medicare or don't you know that? If you were paying the cost your premium would be huge, not a few hundred a month. The people paying for your health insurance right now are the workers of the US. And they are paying your premiums for you because, well Socialism. See how you benefit when the government takes money from somebody and gives it to you?

Originally Posted by blueash (Post 2265854)

And now you want to base health insurance premiums on the health and age of the insured. Thank your lucky stars that ACA and Medicare did away with such things.

Originally Posted by Haggar (Post 2266041)

I have the greatest respect for your projections. I have many clients who are asking me not because of IRMMA but what's the best thing for them in the long run? And the problem with any of these projects is: What will be the rate of investment growth? What will be the tax rates in the future?
And what the effect of a reduced amount to invest because of the taxes required to be paid in the year of conversion. If you're
in a higher bracket the investment amount could be reduced by 20-30% which will affect the yield and growth.

Someone mentions that the sale of a house (particularly a non-residence) could cause an increase in IRMMA (which will calculated for 2024 based on your 2022 return). Yes it could but there a form you can file which requests medicare to reduce the premium based upon non-recurring events or life changing situations. Their response to filing this form is very quick.

Originally Posted by blueash (Post 2265854)

You're not buying Medicare or don't you know that? If you were paying the cost your premium would be huge, not a few hundred a month. The people paying for your health insurance right now are the workers of the US. And they are paying your premiums for you because, well Socialism. See how you benefit when the government takes money from somebody and gives it to you?

Originally Posted by Rainger99 (Post 2266122)

Originally Posted by Jack58033 (Post 2266037)

Baum and Parady will pay for you to go away.

Originally Posted by Jack58033 (Post 2266039)

So you want Universal health care?

Originally Posted by Haggar (Post 2266041)

I have the greatest respect for your projections. I have many clients who are asking me not because of IRMMA but what's the best thing for them in the long run? And the problem with any of these projections is: What will be the rate of investment growth? What will be the tax rates in the future?
And what the effect of a reduced amount to invest because of the taxes required to be paid in the year of conversion. If you're
in a higher bracket the investment amount could be reduced by 20-30% which will affect the yield and growth.

Someone mentions that the sale of a house (particularly a non-residence) could cause an increase in IRMMA (which will calculated for 2024 based on your 2022 return). Yes it could but there a form you can file which requests medicare to reduce the premium based upon non-recurring events or life changing situations. Their response to filing this form is very quick.

Originally Posted by Boilerman (Post 2265941)

But there are several reasons for doing Roth conversions besides avoiding IRMAA. Like being pushed into higher tax brackets. Or being subject to NIT. Or the risk that tax rates will be higher in the future than today’s rates. Or the risk that Social Security benefits might be means tested in the future. Or the psychological benefit of having tax free money to spend from a Roth (my parents refuse to spend their IRA money because of the taxes they would pay.) I’ll say that all these reasons mostly apply to large IRAs, but I don’t agree that $3M is the threshold.

Originally Posted by retiredguy123 (Post 2266246)

I found this to be an interesting math calculation. Assume that you make 10 percent per year on your investments and you have an income tax rate of 30 percent. You convert $100 of your traditional IRA to a Roth, leaving $70 to invest tax free. A year later, you will have $77 in tax free money. But, suppose you do not convert to a Roth and keep the $100 in the traditional IRA. A year later, you have $110 in taxable money. At that time, you convert the $110 to a Roth and pay taxes of $33, leaving $77 in tax free money. So, in both cases, you have the same amount of tax free money. So, what is the point of converting to a Roth?

Originally Posted by retiredguy123 (Post 2266246)

I found this to be an interesting math calculation. Assume that you make 10 percent per year on your investments and you have an income tax rate of 30 percent. You convert $100 of your traditional IRA to a Roth, leaving $70 to invest tax free. A year later, you will have $77 in tax free money. But, suppose you do not convert to a Roth and keep the $100 in the traditional IRA. A year later, you have $110 in taxable money. At that time, you convert the $110 to a Roth and pay taxes of $33, leaving $77 in tax free money. So, in both cases, you have the same amount of tax free money. So, what is the point of converting to a Roth?

Originally Posted by Stu from NYC (Post 2266387)

I agree with you in general but one other consideration.

Down the road either your or your heirs will have to liquidate your portfolio. What will take rates look like than? If taxes go up the roth makes some sense otherwise I would stay and invest all money into IRA.

Originally Posted by retiredguy123 (Post 2266270)

One advantage to keeping your money in a traditional IRA is that, if you move into an assisted living facility or a nursing home, you can spend the IRA money and take advantage of huge medical tax deductions. In the case of a nursing home, 100 percent of the cost is tax deductible. With an assisted living facility, the tax deductible percentage can be as much as about 60 percent.

Originally Posted by CoachKandSportsguy (Post 2266354)

Yes, there are many good reasons to convert to a ROTH, but fear of IRMAA should not be one of them, especially if you are paying lots more in taxes to avoid the penalty than you have to pay in IRMAA, unless you have an IRA say $4M or more when the penalty starts early and continues for the rest of your life. And yes, being single in this case transitioning from a married couple, is a valid point to consider moving some money out of an IRA, but that is the same model with a different scenario, which I haven't finished as the workbook is almost perfected.

Paying $50,000 in additional taxes prior to paying IRMAA at $14,000 per year for two years in the future makes no financial sense whatsoever. One can't grow wealth with a tax / penalty avoidance approach. Taxes are a by-product of success, not the same as tax minimization strategy, which a ROTH conversion is a potential option.

However as on my other post, there is a little advantage to a ROTH versus a TAXABLE account, other than tax free for annual gains which some people might expect are guaranteed, especially in FL with no state tax , but gains are in fact not guaranteed. And if you convert to a ROTH and don't have gains or lose money, unfortunately poor timing, there is not offset, its permanently gone.

The difficulty is that there are a lot of unknowns for sure, the future is always uncertain. The calculations are with the current knowns and relationships, which is the best one can do. . as well as be genetically lucky and live a healthy and long life, same with your spouse. Remember, you might not live long enough but you might. . .

Originally Posted by spinner1001 (Post 2265857)

This thread deviated quickly from the OP’s financial modeling post.

Originally Posted by Haggar (Post 2266041)

in a higher bracket the investment amount could be reduced by 20-30% which will affect the yield and growth.

Someone mentions that the sale of a house (particularly a non-residence) could cause an increase in IRMMA (which will calculated for 2024 based on your 2022 return). Yes it could but there a form you can file which requests medicare to reduce the premium based upon non-recurring events or life changing situations. Their response to filing this form is very quick.

Originally Posted by BrianL99 (Post 2266415)

The model was nonsensical.

Originally Posted by rsmurano (Post 2266412)

I decided decades ago that it will never buy me 1 penny in benefits to go the Roth way compared to the regular 401k way for a few reasons, but 1 main reason:
When I was working, I was in a high tax bracket and I knew for a fact when I stopped working, it didn’t matter at what age, my tax bracket would drop greatly and it has. For example, if I was in a 30% tax bracket when working, I would have to pay 30% taxes on my income before putting any money into a Roth whereas in a 401k, I didn’t pay any income tax and contributed the full amount. So hypothetically, if I wanted to put away $20,000 a year in a Roth using after tax money, I would need $26,000 of income before taking taxes out. But while I was in a high tax bracket, I got to put $20,000 into my 401k and now, I’m in a much much lower tax bracket so my taxes withdrawals are taxed much less than the tax I would have to pay years earlier. This has been true thus far in retirement, with even better benefits.

My work would not do a company match on a Roth whereas I got a lot of company matching that is free money.

The other benefit is that I got a much better return on my money using tax free money than what I would have got taking taxes out earlier. For example: say I had $10,000 to invest in either a Roth or 401k. The full $10,000 would be invested in a 401k because it would be before tax $$$. Now if I wanted to put the same $10,000 into a Roth, I would have had to pay taxes on that money, say I’m in a 20% tax bracket in my working years, I would only have $8,000 to put in the Roth. Over decades, my 401k would make more money because I would have more to compound interest on. This is a fact. Most of the scare tactic financial planners try to scare you by using the same tax bracket in retirement as you were in will you worked. Even if you used the same tax bracket in retirement 20%, you would pay the same taxes on your 401k withdrawals as you would have paid when paying taxes before putting the money in a Roth. Do the math.
But the reality is, you will be in a lower if not a much lower tax bracket in retirement so you will be paying much less taxes on 401k/ira withdrawals than if you paid after tax money in a high tax bracket. Do the math.
We don’t know what things will be like next year or 5 or 10 years down the road. The scare tactic people will say your taxes will be much higher down the road but on the other side of the coin, we just rmd’s pushed down the road by a few years which means less taxes to be paid before larger distributions are warranted, so that gives you more time to cash in on your 401k/ira at a low tax bracket (if not paying 0 tax dollars) so your rmd’s are at a smaller amount in the future.

Originally Posted by rsmurano (Post 2266452)

Why do you think it’s a good time to make the conversion when you retire? Just for grins, say you have $5M in 401k/ira and you are 65 years old. Plus, say right now you are in the $0 tax bracket. Now, you want to say you want to convert $1M a year to a Roth for the next 5 years, do you know what tax bracket you will be in each year? You would be in the max tax bracket, your Medicare payments will jump by 5x or more every year you do this plus 1 year, your social security will be taxed at 85%, on and on. So you sell $1M of your 401k/ira and you get to take a little over $550,000 and invest it. Do this for 5 years, you will end up with $2.5M-$3M.

Now I keep what I have and it compounds by 8-10% each year on average, my $5M will grow to $7.5M-$8M in 5 years (3x more than what you would have with the conversion), let them tax the hell out of me in 5 years each year, but I guarantee you, I will not be anywhere near the top tax bracket and the more money I have in my 401k/ira accounts, the more it will grow, and my growth per year will pay any taxes that will be levied to me.

Originally Posted by BrianL99 (Post 2266416)

A decision not to sell any property, in contrast to what you did a year or 2 ago, is not a "life changing event" per Medicare Regulations and it won't change an IRMAA determination.

Originally Posted by Boilerman (Post 2266553)

You wouldn’t make that large a conversion in any one year for the reasons you stated. But a $8M IRA balance at age 70 would result in an RMD at age 73 of over $300K. Depending of your other income you could permanently be in at least the 32% tax bracket and paying around $500 a month for Medicare forever (times 2 if you’re married). Ideally, you be starting conversions at an earlier age with smaller amounts each year. $8M might be hard to convert. Good problem to have.

Originally Posted by CoachKandSportsguy (Post 2266888)

But remember that many times, you can control events, and at other times, you can't control events, and this is a time where you can't control events. the IRMAA tax is transitionary for those with windfalls or other wealth point issues.

Originally Posted by Boilerman (Post 2267244)

I don’t think people with lots of money have any less aversion to paying taxes as those who don’t. IRMAA can be permanent, not just transitory in some situations. But Roth conversions can, done properly, give you control over future RMDs and taxable income so one can avoid IRMAA and other consequences of having higher taxable income.

Originally Posted by Boomer (Post 2267309)

The guy who wrote the post I am quoting here gets my vote.

Btw, I have said it before and I will say it again……

I don’t care how many commas you have in your total IRA amount, it could be well worth taking the time to look into converting to Roth…….

especially when you are in what can be a very sweet spot after retiring, when your earned income goes down, but before RMD age.

Generic financial advice cannot apply in this one.

And — another thing — speaking of generic advice — that thing about waiting to take SS until full SS age is also generic advice. There are many different scenarios where that tedious mantra should not apply because taking the money and running at 62 could make a lot more sense in a variety of circumstances — including being able to stay out of tax-deferred accounts longer.

Why in the heck do people think financial advice should be one-size-fits-all.

Boomer

Originally Posted by Stu from NYC (Post 2267313)

Even worse are so called financial advisors who really have no idea what they are doing other than lets sell annuities so we can make some money

Originally Posted by Boilerman (Post 2267244)

I don’t think people with lots of money have any less aversion to paying taxes as those who don’t.

Originally Posted by Boilerman (Post 2267244)

IRMAA can be permanent, not just transitory in some situations.

Originally Posted by Boilerman (Post 2267244)

But Roth conversions can, done properly, give you control over future RMDs and taxable income so one can avoid IRMAA and other consequences of having higher taxable income.

Originally Posted by Caymus (Post 2265837)

Are the "super rich" actually on Medicare? Don' t they use some sort of Concierge System?

Originally Posted by CoachKandSportsguy (Post 2268193)

The model ONLY looked at the effect of IRA size with max social security benefits taken at by couple at FRA, minimal other taxable account income and the current RMD schedule to find where the size of the IRA at age 65 this year would cause the IRMAA tax to happen as a result of the RMD schedule, and only a married couple's limit, not a single limit. That is all, what people read into post and interpret is beyond the control of the post, as well as conflating this specific model output with other benefits of a ROTH, which was not the model output. The model makes no judgement on the value of a ROTH



That's an assumption to justify your position. They may have an aversion, but may leave the decision to someone else as the issue is a result of success, and they focus on success, and let someone else worry about execution after the results. From what i have seen from these people, success is the key focus, not the avoidance of taxes as their focus.


Known issue, model calculates same. With a cap so as income increases it becomes a smaller percentage, and against other tax percentages, it is not the biggest to pay so it becomes less important. again, the model only looked at if IRMAA will effect a couple from an IRA RMD after a certain size. It does appear to be permanent or payable over many years with an IRA over $4 under the constraints of the model, which would currently start at the first RMD. That is all the model says, nothing else.



Nothing suggested that is not the case, especially when near the level of having to pay penalties and taxes. The model has many inputs and currently known income tax by income level, deductions or standard, different incomes sources, social security at what age, etc.. but my post only focused on the effect of ONE variable under ONE scenario, which may be a common scenario,

The model makes no other judgements about the benefits to a Roth, the conversion to a ROTH, or even that a ROTH is the best option, and a ROTH does have drawbacks as compared to putting the conversion into a taxable account. The model also does not know of future tax law changes, which means that the model is not clairvoyant, and is only good as fy2024 anticipated taxes and levels, and very conservative IRA annual increases, given interest rates, geopolitical instability, and deterioration of the US standard of living by capitalism.

So if a reader here, who has not had much tax experience, reads that everyone doing ROTH conversions because of the threat of IRMAA tax, feels that they should follow because of what they read, maybe the information they are reading is incomplete as far as how much money they have relative to others posting on the board. under the current tax laws, IRMAA will not apply to everyone, so maybe they should visit with their financial advisor and tax person and see if they should be concerned about IRMAA or not. . and then while they are at it, they should also ask if a ROTH conversion is good for them, and how much.

IRMAA will not apply to everyone reading here under the fixed scenario presented. Other scenarios have not been presented.