While the base amount for Medicare Part B premiums is $170.10 for 2022, payments go up once income exceeds $91,000 ($182,000 for joint filers). The calculation uses MAGI from two years prior.
Roth withdrawals, however, won’t show up on tax returns, said Gessner, meaning retirees don’t have to worry about these distributions causing Medicare premium increases.
With my looming retirement, I’m going to have to start taking some actions soon. For example, it is common wisdom to move 401K funds after leaving a company. We’ve been making some post-tax contributions to IRAs, and some backdoor ROTH conversions. We should probably continue that, though AJ has been saying the rules are changing on that (as I recall), and of course they could continue to change in the coming years. So I will start having to pay attention to that**.
My priority right now is lining-up medical coverage. As of now, we have HSA accounts open. So we have that available, and I’ve read it can be used in clever ways even after we have no more earned income. Need to dig more. I’ll probably go to an Obamacare exchange for coverage (already have a login).
1poorguy
**I didn’t pay that close attention because the rules almost certainly were going to change, so I would have been learning something that would be obsolete by the time I got there.
**I didn’t pay that close attention because the rules almost certainly were going to change, so I would have been learning something that would be obsolete by the time I got there.
One of my mistakes was to not start my Roth conversions earlier than I did. As a result of not getting fully converted in my sixties, I am now juggling the entanglement of taxable SS benefits, IRMAA penalties, and RMD’s with conversion amounts. These factors plus the tax brackets are all moving targets as the tiers and cutoffs are adjusted each year by Uncle Sugar.
My advice to anyone would be to start conversions as early as possible, even small amounts to fill whatever bracket you are in (except I refuse to go into the 30% and above brackets with conversion dollars). Roth’s did not exist until 2006, long after after I started my TIRA. But I didn’t get started on conversions until around 2012 and even then just started haphazardly. Ever year you do not fully exploit the conversion opportunity available to you is lost forever.
My priority right now is lining-up medical coverage. As of now, we have HSA accounts open. So we have that available, and I’ve read it can be used in clever ways even after we have no more earned income. Need to dig more. I’ll probably go to an Obamacare exchange for coverage (already have a login).
I don’t know what the options are for you on your exchange. For us in Ohio it makes more sense to go with a high deductible, non-HSA compliant plan. The HSA compliant plan available to us has a lower deductible, but substantially higher premiums, and doesn’t cover regular doctor visits and such until the deductible is met.
When I fully retire (2023?) it could be different, because we’ll be getting better subsidies.
Roths not an option for now. We try to reduce our MAGI so we can scrape under the ACA subsidy cliff. We max out all pre-tax vehicles (except HSA). RMDs and Medicare too far away to think about.
Roths not an option for now. We try to reduce our MAGI so we can scrape under the ACA subsidy cliff. We max out all pre-tax vehicles (except HSA). RMDs and Medicare too far away to think about. - AdrianC
I understand that everyone has different circumstances, different priorities, and different abilities to predict income. That said, even if your ACA cutoff would only allow a $500 Roth conversion, then why not? That is $500 that will grow tax free from here forward. Every conversion opportunity not taken, no matter how minimal, is lost forever.
I understand that everyone has different circumstances, different priorities, and different abilities to predict income. That said, even if your ACA cutoff would only allow a $500 Roth conversion, then why not? That is $500 that will grow tax free from here forward. Every conversion opportunity not taken, no matter how minimal, is lost forever.
Yeah, after I wrote my post I thought I’d spend a bit of time running some scenarios.
For 2022 there is no ACA subsidy cliff. Premiums are capped at 8.5% of MAGI.
With a large contribution to the DAF that we planned on anyway we can stay in the 22% tax bracket, giving a Roth conversion cost of 25%.
Roth’s did not exist until 2006, long after after I started my TIRA. ----------------------------------- News to me. My wife and I started making Roth contributions in 1998-1999.
Maybe he is talking about the Roth 401k since it is in the thread title. Those started in 2006.
>>Roth’s did not exist until 2006, long after after I started my TIRA.<<
News to me. My wife and I started making Roth contributions in 1998-1999. - jjaym
Thanks for the correction. I could not remember when they came around so I looked it up and misread. 2006 was when Roth 401K’s were created. Roth IRAs were created in 1998.
We’ve been making some post-tax contributions to IRAs, and some backdoor ROTH conversions. We should probably continue that, though AJ has been saying the rules are changing on that (as I recall), and of course they could continue to change in the coming years.
The rules that may change are currently part of the Build Back Better plan. So your guess is as good as mine as to whether any/all of it will become law. The new rules would eliminate the ability to do conversions of any after-tax contributions in all retirement plans (IRA, 401(k), etc.) At this point, I would not expect there to be any retroactive restrictions, because that would be a huge mess for those who have already done conversions this year. But if that part of Build Back Better passes, I wouldn’t be surprised if those types of conversions had an expiration date sometime during this year - either as of the effective date of the law, or maybe the beginning of a specific quarter, like July 1, 2021. So for anyone who has any after-tax contributions that they want to convert, doing the conversion sooner rather than later would probably be advisable.
I will also point out that preventing conversion of after-tax contributions into a Roth account does raise revenues, because it keeps after-tax contributions in Traditional accounts, where the earnings will be taxed upon withdrawal. Even if there was an off-ramp that allowed a one-time withdrawal of all after-tax contributions because they could no longer be converted (not that I’ve seen this in any of the current proposals), it still gets the money back into a taxable account, where earnings will be taxed. And because the impact is limited to those who are both well-off enough to make after-tax contributions and then actually do make those contributions, the number of voters it would impact is limited. So even if it doesn’t pass as a part of Build Back Better, I wouldn’t be surprised to see it show up in a future bill, no matter which party is proposing the bill.
The Build Back Better proposals also had rules limiting all conversions based on income - either immediately or at some point in the future, depending on the version - which basically reinstitute the rules that Roth accounts originally started with, although with higher income limits. These rules also raise revenues by keeping money in Traditional accounts, where the earnings will be taxed upon withdrawal. I also wouldn’t be surprised to see this type of rule show up in a future bill, no matter which party is proposing the bill. So again, getting any conversions done sooner rather than later is probably advisable.
Here’s a Roth conversion number that surprised me-
<<A quick glance at the latest IRS data tells the story: Among more than 200 million U.S. tax filers, fewer than 724,000 did a Roth conversion in 2018. Roughly 60% of those conversions were carried out by households that made between $100,000 and $500,000.>>
You hang out here & at Bogleheads.org too long and you tend to forget you’re swimming in a upper middle class/high net worth pool, for the most part. I had no idea the number of Roth conversions was so low.
Personally, I think closing the Mega Backdoor Roth loophole makes sense. I don’t think Congress intended to let rich folks open the sluice gates of cash into their Roth IRAs to the tune $60k per year. YMMV.
Personally, I think closing the Mega Backdoor Roth loophole makes sense.
I agree.
I don’t think Congress intended to let rich folks open the sluice gates of cash into their Roth IRAs to the tune $60k per year.
Law, and especially tax and finance law, is written for rich people. So I have to disagree with your statement. Why else have a cap of ~$100K on income for FICA/SS withhold? That benefits only the wealthy. And why not tax wealth instead of labor/work/income? Why are cap gains taxed less than work? All that benefits the rich, not the average working Joe.
So I think that is precisely what Congress intended.
Why else have a cap of ~$100K on income for FICA/SS withhold?
I would point out that the cap hasn’t been less than $100k since 2007 https://www.ssa.gov/oact/cola/cbb.html and most recently, increased from $142,800 in 2021 to $147,000 in 2022. I would expect the increase for 2023 to also be fairly significant, since it’s based on the national wage index, and wages have been increasing significantly.
That said, I would still agree that the loopholes written into the tax code are primarily to benefit those with higher incomes.
Personally, I think closing the Mega Backdoor Roth loophole makes sense. I don’t think Congress intended to let rich folks open the sluice gates of cash into their Roth IRAs to the tune $60k per year. YMMV.
And yet closing the Roth “loophole” for the affluent COSTS the treasury in the short and intermediate term.
Yeah, I was lazy to look up the exact number. Last I knew, it was something like $115K or thereabouts. I don’t pay that close attention since I’m in no danger of hitting that limit.
Personally, I think closing the Mega Backdoor Roth loophole makes sense. I don’t think Congress intended to let rich folks open the sluice gates of cash into their Roth IRAs to the tune $60k per year. YMMV.
And yet closing the Roth “loophole” for the affluent COSTS the treasury in the short and intermediate term.
How so? The particular loophole being discussed lets people convert contributions that have already been taxed, and would have been taxed whether or not they were contributed (since they are after-tax contributions), without paying any additional taxes.
<<A quick glance at the latest IRS data tells the story: Among more than 200 million U.S. tax filers, fewer than 724,000 did a Roth conversion in 2018. Roughly 60% of those conversions were carried out by households that made between $100,000 and $500,000.>>
And if you read a little further in that Forbes article, you get to this sentence:
The rules would have essentially bar (sic) the 18% of Roth conversions that were done by taxpayers who took in more than half-a-million in income.
Ignoring the grammar error (Forbes editors apparently aren’t what they used to be), what I take from this is that 22% of the taxpayers who made Roth conversions in 2018 had less than $100k in income. That was surprising to me. I would have expected the number of Roth conversions done by those with more than $500k in income to be a much larger than the number done by those with less than $100k, especially since mega backdoor Roth conversions are counted in that ‘conversion’ figure, especially with the assertion that