IRMAA not worth getting excited over unless LARGE IRA
 

My financial expertise is in building models for future decision making about whatever the topic is, doesn't matter, there are thousands of financial decision topics.

So, since I (Sportsguy) am now retired and my wife (CoachK) is still working but will retire next year, I have built out the retirement model even further to include medical insurance premiums and Roth Conversions to understand when to take Social Security and what is the status of our IRA savings and investment savings to weather the future expenses in TV, for taxes and a cash flow statement to see when additional withdrawals may be required. (I have not factored in the latest increase in AUTO insurance premiums :eek:)

After researching IRMAA, a hot topic du jour for some, I modeled out a married couple, with both at current max social security, again maybe us :shrug:, with IRAS with RMDs, as everyone has. With the model being dynamic, the starting point is we are both 65 at the end of this year, start taking Social security on Jan 2025, when I qualify for full retirement benefits for both. At that time, i am assuming 5 k in additional taxable income above SS from any other sources, investments, part time work, etc.

Using inflation and other annual increasing assumptions (IRMAA threshold increased at nearly 6 % and Social security increased at 4%+ for CY24) and market returns for investments are 6% out for 20 years, the effect of RMDS can be seen in AGI and in taxes and tax brackets.

By entering an CY22 ending IRA balance as a total for a married couple, here is the age and year we would have to pay IRMAA penalties based upon current RMD percentages, based on max SS, RMD and taxable income year by year

Conclusion: Its not worth ROTH conversions and paying taxes now to save future IRMAA penalties in the future for married couples with IRAs less than $3,000,000

certainly its a non issue for us, and i suspect many others.

I am more than willing to share the workbook after I detail out the IRMAA penalties by taxable income bracket, I just used the max penalty in the example, and since its per person for a couple, it gets a bit detailed to calculate out which person in a couple, so i just doubled the per person penalty. . (may need to research the married couple scenario a bit as well), however, i am still looking for a CFP willing to review it for reasonableness. There are a few financial types here who can PM me to discuss validation of formulas, but not assumptions)

Some of us are stuck paying confiscatory IRMAA Medicare premium surcharges no matter what we do or don't do short of giving most of our hard savings and investments to charity,.

Confiscatory? You are making so much money on your money that you are required to pay extra for government health insurance. Poor you. So much confiscation going on. Maybe they should rework the medicare premiums so the super rich get a better break and the average retiree pays more to make up the difference. Let them eat cake comes to mind.

So what percentage tax rate is our fair share. Govt is not exactly efficient in spending ⁸

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

To me it is like going into a McDonalds and buying a hamburger. If one is 'poor' he pays $5.00; if he is upper middle class he pays $50.00. Health insurance should cost the same for folks of similar age and health regardless of their income. Successful folks who usually started with little, worked hard, saved their money and invested wisely should not be forced to pay health insurance for profligate wastrels and deadbeats. That is socialism. Now if someone is or becomes disabled through no fault of their own then that is an entirely different matter. They need to be assisted.

Sorry, guy, I do not nor will I ever like generic financial advice. Every situation is different.

This one is not just about IRAs. It could be about a large capital gain from a stock sale in a taxable account or a sale of a secondary residence or one not held for 2 years as the primary.

I am not a high net worth woman. I just happen to be an aware woman and if IRMAA is lurking around the corner, I think people should know they have a choice — if they want it — to give the amount that crosses the threshold to charity by using QCDs for some or all of the amount of the RMD.

As far as those sweet-spot conversions go, I remain a proponent of at least learning about what you might be able to do. A conversion could end up being money for yourself down the road, not just for your heirs. You might need it to pay for your own healthcare someday.


Like a previous poster here, I, too, am appalled at the “I got mine. Too bad ya don’t got yours” philosophy of those who cannot see that especially for those younger than us, there are many hard-working people who have been hit with obscene medical insurance and pharmaceutical costs, student loans that often look like usury lending, and ridiculous costs of housing.

And about that tax cut for high net worth taxpayers and corporations — well, how’s that working for us regular people now?

I am not into giveaways, but I am waaaaay into fairness — and I am worried that as a country, we could collapse under greed — and hate.

Ya know, sometimes it’s good to be old.

:boom:er

Oh my, I sure jumped the track on that one. Not mad at you, guy. Just plain mad right now.

Top Federal rate is now 37% + 3.8% NIIT = 41.8%. That ain't chicken feed. Moreover a substantial percentage of people pay no income tax whatsoever.

" In total, about 59.9 percent of U.S. households paid income tax in 2022. The remaining 40.1 percent of households paid no individual income tax. In that same year, about 47.1 percent of U.S. households with an income between 40,000 and 50,000 U.S. dollars paid no individual income taxes."

From: Households paying no income tax by income level U.S. 2022 | Statista

More and more think we will spend the country into bankruptcy

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?

But you with your portfolio and your bonds and your IRAs and your 401Ks which just make you money while you do nothing contribute to the GNP, you make so much from being rich that a little more gets asked of you so the workers who are actually paying your medical costs and the other people on Medicare put in a little less.

It is not McDonalds. It never has been. 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. Decency, do onto others, share your toys... Did you miss those lessons in basic humanity before you decided dollars are so golden??

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

It is not 37% on all your income, though, only the portion of your income over $693,750 for couples or over $578,125 for singles. And if your income is coming from qualified dividends, the top rate is 15% for that income unless you make over $553,851 for couples, or $492,301 for singles. Above that, your qualified dividends are still only taxed at 20% plus the aforementioned NIIT of 3.8% on the investment income for couples over $250,000. I just think it’s misleading to throw 41.8% out there, no one is actually paying that much across all their income.

This is spot on.

For people in the top 10% of adjusted gross income (AGI), the average US income tax rate for 2020 (latest available data) was 20.3% of AGI.

https://www.irs.gov/pub/irs-soi/20in41ts.xls

Boy, and I thought I was Anal-litical!!

[QUOTE=blueash;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?

Not true. I and everyone else has paid for their medicare thru your wages when working. I'm tired of hearing my social security and medicare are giveaways. I PAID for many years.
Now uncle sam likes to say they "give' us that. I call BS!

Breath, Breath.....................that's not what Blue is talking about............Breath.

CORRECT! We have a progressive tax system, and taxes are calculated by tiers. Most people are unaware of that. Good comment.

From your post, my guess is that you were born in 1958. Assuming that is true, your full retirement age is 66 years and eight months which would put your FRA for the purpose of SS at about Aug, 2025.

Separately, I do quite a bit of development on various spreadsheets to track, stocks, options (calls, puts, IC, spreads…) and numerous calculations for various options trades. I would be very interested in seeing what you’ve created at such point that you decide to share your work product.

Start taking SS at 62. Waiting until full retirement age to start SS means youl will have to live to approx 80 years old to make up for the years you didn't take SS. How many people do you know who passed before reaching 80?

That is astonishing. Add to that the large number of people who pay NO IRS taxes who vote for candidates who want to cut taxes. A tax cut doesn’t help you if you don’t pay that kind of tax. Some people don’t think clearly, yet they are still allowed to vote. And drive.

I’m tired of hearing if you have money, you need to share it. Most people who have money when they retire worked hard and long hours during their working years. And these same people did the right thing and invested a lot of their money during those years for the future instead of partying and overspending. Now, the have nots want to condemn the people that did the right thing.

Socialism/robbing Peter to pay Paul does not work and will never work. ACA is the worst thing that was ever created, ask around.

As for taxes, your goal every year for your whole life is to pay the least amount of taxes legally. If you want to pay more, there is a line that lets you add more taxes to your return. Same for social security, we all paid SS taxes during our working years and now we are double taxed on these distributions which is unfair. Hopefully that will change.

Everyone got a tax reduction 5 or 6 years ago. Somebody mentioned the rich only pay 20% tax, that is huge. If you make $1M a year, they will be paying $200,000 in taxes, this is a huge amount of money.

We should implement a flat tax of 10% for everybody, no deductions, no loopholes, and we would have much more money coming in for the government to spend foolishly.

Yea that's disappointing, the op had some very interesting things to say.

I don't see a line on the tax return to pay additional taxes. What tax form and line are you referring to? In my experience, if you overpay your taxes, the IRS will usually correct your return and send you a refund.

Thank you! I realize there are a bunch of variables, but I really appreciate this analysis (and I know it was a ton of work). This describes my wife and I fairly well and I have been wondering where the cut off point would be. This analysis places that point at $3M. Even if that is off by $1M, the info is useful. I always suspected it wasn't worth doing a conversion. I just wish I would have started a Roth younger. My kids know from my error though!

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.

Many of those tax cuts, if not all them, are set to expire in 2025-26 because they were passed in Budget Reconciliation to avoid the Senate filibuster rule. The amount these tax cuts increased the national debt was so large that they had to make them temporary in order to stay within Reconciliation rules. Extending them or making them permanent will add trillions more to the national debt. It will be interesting to see what happens as this will be one of the first things Congress has to tackle after the 2024 Presidential election. The Reps from both parties from many states which have high income or property taxes will not vote to extend the State and Local Tax (SALT) deduction limit of $10,000 no matter what.

As for the ACA, it is most certainly not the worst thing ever, in fact it now has public approval polling over 50%. The worst thing ever might be tying health insurance to your job. Without the ACA, tens of millions of people would have no health insurance at all. There are a lot of folks who decided to retire before age 65 who relied on the ACA to get them to Medicare-eligibility.

High interest rates and the national debt and unfunded mandates, oh my
 

"We should implement a flat tax of 10% for everybody, no deductions, no loopholes"

Ahh, but that's still progressive taxation, no? A flat tax would be everybody writes the same size check. Sorta like the way everybody gets the same number of votes - the old "one man, one vote" thing. Except they now let *wimmin* vote!

On a more serious note, what I keep wondering is what happens where a threshold is crossed when the combination of national debt size and high enough interest rates leads to a % of the budget being paid out as interest on said debt becomes unsustainable.

Have read a fair bit of speculation about the subject of late. The most plausible (to me) is that it happens gradually - and then all of a sudden. Reading more and predictions that have it occurring during my (likely) lifetime. Hard to anticipate much likelihood of a sudden turn towards fiscal responsibility by our "leaders" on the national level in time to avoid that cliff. Could get interesting. . .

So, I'm wondering if your spreadsheets include any "assumptions" that factor that scenario in. That is, SS payments get massively and suddenly reduced.

Isn't that a cause for hyperinflation? The government repays loans with "cheaper" dollars.

Be careful the tail isn't wagging the dog if trying to minimize IMRAA.

I know someone who decided to delay a cruise to avoid taxes a year who didn't make it to the next year.

Manabouttien: totally agree paying high premiums for Medicare because if IRMAA and single person. Hubby with the lord so I am paying way too much being single

It’s not like we inherited it we worked for it

Depending on your age, maybe you shouldn't feel bad for not starting a Roth earlier. Remember, there was no Roth IRA until 1997.

Be careful! If you are getting Obamacare tax credits to help pay for health insurance between the age of 62 and 65, taking early SS could put you over 400% of the FPL and wipe out your tax credits, costing you thousands of dollars. Every situation is different.

It's More Important That Everyone Pays Some Tax
 

A flat income tax rate has advantages and disadvantages that are too numerous to discuss in this forum.

What is easier to discuss is the proposition that everyone should pay some income tax, i.e. everyone should have "some skin in the game". We have created a system where 40% of the people pay nothing and, therefore, think nothing about what the government spends with the exception that they want the government to spend more on them.

This reduces, if not eliminates, the involvement of a large part of the citizenry in the manner in which our country is run. However, it is particularly offensive to those who are taxed when the non-taxed are involved and vote on how to spend other people's tax money.

In the 1950's nearly all small, rural, school districts were eliminated and children were bused to large "consolidated" schools. Up to that time, the rural one, two, and three room schools were governed by residents of the area served by the school and the property owners in that area were taxed to pay for the schools. You better believe that, while pennies were pinched, a high percentage of the residents were knowledgeable about what went on at "their" school and were concerned that their children received a good education. These schools were the classic example of taxpayer involvement.

I'm not saying that these small, local, schools were the best way to educate children (although my wife came out pretty well from a two-room school in rural Illinois). What I am saying is that these schools demonstrate the social benefit of citizens having "some skin in the game".

You are right on/!

But they don't pay nothing. Their income is low enough and they have enough children that with the earned income tax credit and child care credits and the standard deduction, they end up owing no federal income tax. But they still pay state income tax in most states. They still pay Medicare and Social Security taxes. They still pay sales taxes. They still pay federal excise tax on every gallon of gas and other miscellaneous taxes. To question their right to vote is really something.

The Right To Vote Is Not The Issue
 

I am not questioning the right of non-taxpayers to vote. I am questioning the wisdom of having 40% of the citizenry pay nothing in income tax. Many of this 40%, as well as many of the 60% paying income taxes, will not vote in any event. My point is that citizens who pay income taxes are more likely to vote and to consider the issues on which they vote and the platforms of the candidates they have to choose among.

As I recall, only property owners could vote in the school board elections in the rural districts in Illinois. However, many of the owners had tenants who farmed their land and many of the tenants as well as owners farming their own land had one or more "hired men'. The tenants and the hired men lived on the farms and had families. Providing decent schools for the children was a serious obligation. The men and women who were elected to the school boards took this obligation seriously and were proud of their school. I admit I view those times through rose-colored lens; however, I know from personal experience that those schools were a prime example of the benefits of an involved citizenry.

With the increased mechanization of farming and the consolidation of small farms into large ones, the rural population rapidly diminished in the 1950's. This, together with the increase in supervision of all schools by the state resulted in the consolidation of the schools into area-wide districts.

Baum and Parady will pay for you to go away.

So you want Universal health care?