IRMAA bracket bust -- lesson learned

I did a Roth conversion of about 80% of my planned total for the year back during the September stock market lows, thinking I could move more shares to my Roth for the same dollar amount. Then I’d do a second Roth conversion at year end to top off my target IRMAA bracket.

Then in early December one of the stocks in my taxable brokerage account issued an unexpected one-time special dividend, blowing through my 20% buffer on the size of this year’s Roth conversion. (Thus, my fondness for Berkshire Hathaway which promises to never pay a dividend.)

Don’t try to get cute, do the whole amount of your Roth conversion the last week of the tax year when you’ll have a better handle on your total taxable income.

intercst

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I hate when that happens! I really don’t like dividends at all, I prefer to time my income on my own, not have some random CFO do it for me. I don’t know if you recall, but about 10 years ago when Apple restarted their dividend I strongly opposed it. And when Microsoft had that “special dividend” I opposed that as well. If a company has excess cash, and can’t find a productive way to put it to work, I much prefer them buying back shares (from people who want an immediate return on capital) than to distribute a dividend to all shareholders, both those who want an immediate return on capital and those who don’t want an immediate return on capital.

Recently I’ve been shifting my holding of VTI to BRKB solely for that reason. And doing it while my basis in VTI is still close to the current price. Unlike my individual stock holdings, many of which I hold for decades, I only started buying VTI in recent years.

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I agree. The company that issued the special dividend (Avis Rental Car) is also doing a big stock buyback program at the same time. I’d have much preferred that they doubled the size of the stock buyback and eliminate the special dividend.

intercst

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Intercst,

By shifting VTI to BRK, aren’t you trading taxes due for extra risk? Particularly since 1/2 of the BRK leadership died and the other half is well past his expiration date.

I am almost certain that your answer will be something like this: the certainty of taxes due is worse than the risk of BRK becoming Polaroid, Kodak or Enron. :rofl:

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Most of BRK’s shareholders are wealthy family business owners who sold the shop to BRK as an estate tax maneouver (e.g. sell the company to BRK, sell off as many shares as you need to to pay the estate taxes, Warren lets the family members continue to run the business as long as investment returns are good.)

BRK has a very strong culture. They are unlikely to bring in a Jack Welch-trained MBA to run the place into the ground.

intercst

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You are adding specific-stock risk.

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There is clearly more risk owning ~10 stocks plus a conglomerate insurance company of sorts than owning a gigantic index fund that holds thousands of companies. But risk goes both ways, there is the risk of lower performance and the risk of higher performance. A few decades of history has shown that the risk in this case is relatively low. And, because of the complexity of tax law, the benefits of being able to time one’s income judiciously is very high in many cases. People routinely expose themselves to additional risk in return for additional benefits.

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