I opened two accounts last year at Charles Schwab. One brokerage account and one traditional IRA. My question is…
Can I fund the traditional IRA from the brokerage account (transfer cash and or stocks to it)? It’s my understanding (at my age) I can fund $7,000 max to the IRA per year. But I’m not sure if I can fund it in that manner proposed above, should I choose to do so in future years.
Thanks,
Troy
Can I fund the traditional IRA from the brokerage account (transfer cash and or stocks to it)? It’s my understanding (at my age) I can fund $7,000 max to the IRA per year. But I’m not sure if I can fund it in that manner proposed above, should I choose to do so in future years.
New contributions to IRA accounts must be made in cash. You would have to sell stocks in the taxable account and transfer cash to the IRA account. If you do, watch out for the possibility of a wash sale if you sell a stock at a loss and then buy it back within 30 days (either side of the sale) in the IRA.
Ira
Can I fund the traditional IRA from the brokerage account (transfer cash and or stocks to it)? It’s my understanding (at my age) I can fund $7,000 max to the IRA per year. But I’m not sure if I can fund it in that manner proposed above, should I choose to do so in future years.
You can transfer cash into your IRA to make the contribution amount. You cannot transfer stocks. Contributions to IRAs must be made in cash only.
Keep in mind for the future: When you are withdrawing from an IRA, you are able to transfer stocks to your brokerage account. It’s called an ‘in-kind’ withdrawal. Any taxes will be based on the value your broker assigns to the stock at the time of the transfer. You will need to check with your broker to see how they assign the value - closing price the day of the transfer, opening price the next day, market price at the time of the transfer (if done during a trading day), or something else.
AJ
You can contribute $7000 to your IRA if employed and making at least $7000 a year.
If retired and not working…nope.
t.
You can contribute $7000 to your IRA if employed and making at least $7000 a year.
If retired and not working…nope.
t.
However, if you are working and also doing large Roth conversions, it is pretty easy to hit the threshold for phasing our Roth contributions.
Learned that the hard way.
But I believe you can keep feeding an HSA. There will always be medical bills, and at some point I don’t think you have to withdraw only for medical expenses. Age 70, I think. You can withdraw for whatever you want.
Planning to do ROTH conversions next year when my salary is zero. Though I’ll have to do research on what the limits are so we don’t get hit with a big tax bill.
1poorguy
Planning to do ROTH conversions next year when my salary is zero. Though I’ll have to do research on what the limits are so we don’t get hit with a big tax bill.
1poorguy
In addition to evaluating Federal Income Tax brackets, be sure to factor in impact of IRMAA on medicare premiums and impact on taxation of SS benefits.
In addition to evaluating Federal Income Tax brackets, be sure to factor in impact of IRMAA on medicare premiums and impact on taxation of SS benefits.
IRMAA is real, but it’s not really that big of a deal.
For MFJ under $182,000 of taxable income Medicare is $170/mo (each)
1st IRMAA step (to $228,000) is $238, or $68/mo more.
With standard deductions that is a pre-tax income of $256,000
In contrast, the Federal income tax on $256,000 – resulting in $227,500 taxable income – is $42,271, or $3523/month.
The additional $68 (each) is negligible compared to $3523.
… impact on taxation of SS benefits
SS is taxed at 85% for MFJ at $44,000 gross income (AGI plus 1/2 of your SS benefit).
If you are even moderately successful financially you are well past $44,000.
So you might as well plan on it be fully 85% taxed.
For single people, IRMAA can bite a lot sooner
2022 2023 (with 9% inflation)
Standard Single: <= $91,000 Single: <= $98,000
Married Filing Jointly: <= $182,000 Married Filing Jointly: <= $196,000
Married Filing Separately <= $91,000 Married Filing Separately <= $98,000
So…depending upon your income…you can get bit by the IRMAA…as a single or filing separately
t.
For single people, IRMAA can bite a lot sooner
2022 2023 (with 9% inflation)
Standard Single: <= $91,000 Single: <= $98,000
So…depending upon your income…you can get bit by the IRMAA…as a single or filing separately
t.
Damn straight.
Toss in some cap gains and some interest on top of SS and a Roth conversion, and it is easier to get IRMAA’ed that you might think.
But I believe you can keep feeding an HSA.
As long as you are eligible to contribute, which means you have to use an HDHP as your only medical insurance. At this point, Medicare is not considered an HDHP*, so at most, you can only feed an HSA until you are 65 or, if still working and not on Medicare, until 6 months before you quit working (because of the 6 month lookback if you sign up for Medicare after 65).
*Sometime before COVID, there was a bill that proposed allowing Medicare recipients to make HSA contributions. However, it also disallowed the ability to use HSA funds to pay any Medicare premiums. I wrote my representative and complained about it. He assured me that he would look into changing that. As far as I know, the bill has not been re-introduced, but it’s out there.
AJ
at some point I don’t think you have to withdraw only for medical expenses. Age 70, I think. You can withdraw for whatever you want.
Your thought is incorrect. Beginning at age 65, you can withdraw money for other reasons than qualified medical expenses, but you will owe ordinary income taxes on the withdrawals. So, once you hit 65, if you have no qualified medical expenses, it can be treated like a Traditional IRA without RMDs.
And actually, you can always withdraw for anything. It’s just that withdrawals before age 65 without documentation for qualfied medical expenses will incur both ordinary income taxes and a 20% penalty.
AJ
I’m not yet on Medicare, so don’t have to worry about IRMAA yet. But you are correct that will need to be factored in eventually.
Hopefully we can get the conversions done before Medicare kicks in. Or at least a good chunk of them.
Your thought is incorrect. Beginning at age 65, you can withdraw money for other reasons than qualified medical expenses, but you will owe ordinary income taxes on the withdrawals. So, once you hit 65, if you have no qualified medical expenses, it can be treated like a Traditional IRA without RMDs.
Thanks for the correction. I’m not 65 yet, so only skimmed those details. Right now I can use them on qualified medical expenses, not insurance premiums, but eventually premiums for at least two “parts” of Medicare (B and D, I think).
Thought it was treated like a ROTH after 70 (you corrected me to 65). Good to know it’s like a traditional IRA at that point.
Oh…and to my surprise, HSA bank doesn’t require documentation to give me the money. I thought it would be like an FSA where I had to submit EOBs or other statements before the money would be reimbursed. Unless I use their debit card. But, no. They just give me the money whenever I want. It only becomes an issue if I’m audited by the IRS. Then I have to produce the receipts. Kinda weird they are relying on the audit process for that.
Right now I can use them on qualified medical expenses, not insurance premiums
I will point out that COBRA insurance premiums are qualified medical expenses for HSA. Check number 2 from IRS Pub 969 https://www.irs.gov/pub/irs-pdf/p969.pdf
Insurance premiums. You can’t treat insurance premiums as qualified medical expenses unless the premiums are for any of the following.
1. Long-term care insurance.
2. Health care continuation coverage (such as coverage under COBRA).
3. Health care coverage while receiving unemployment compensation under federal or state law.
4. Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).
There are some details on all of these insurance premium exceptions that are also detailed in IRS Pub 969 that I would encourage anyone using these exceptions to read.
AJ
SS is taxed at 85% for MFJ at $44,000 gross income (AGI plus 1/2 of your SS benefit).
If you are even moderately successful financially you are well past $44,000.
So you might as well plan on it be fully 85% taxed.
I am Roth-ifying a significant portion of my IRAs. I should be able to avoid my SS being taxed on 85% thanks to taking tax free Roth IRA withdrawals when I start taking SS, rather than taxable IRA withdrawals.
My calculations show that thanks to a low taxable income, my “provisional income” (AGI + tax-exempt income + 1/2 of SS) should allow that to pan out.
Also, I’m paying federal income taxes at 22% (filling that bracket) and (some at) 24%, rather than the 25% that the 22% bracket is set to return to after 2025. But, more than saving that 1% or 3%, keeping the SS taxed at mix of 0% and 50% is the real savings.
That’s all at “worse than average” market returns. If I get portfolio returns like the last 20 or 30 years, my regular IRA with have enough so that RMDs will be high enough to undo the above calculations. But, I optimized my retirement around near-worst-case assumptions. Rather than minimize my “best case” taxes, I maximized my “won’t run out of money” scenarios.
Also, that $44,000 number has been in place for decades, IIRC. If anything’s ripe for an increase to account for inflation…
Also, that $44,000 number has been in place for decades, IIRC. If anything’s ripe for an increase to account for inflation…
Yep. In 1983, when that limit was set, median household income was $20,000 https://dqydj.com/household-income-by-year/ Adjusting for inflation up through 2021, that $20k would now be $53,644. So using the same inflation adjustment, the $25k limit for singles would be $67,055 and the $44k limit for MFJ would be $118,017
I’m sure that putting no inflation indexing on the limits was purposeful, or it would have been changed within the next couple of months/years after it first passed. There have been some attempts more recently, but I doubt it will get changed unless Congress addresses it in whatever the solution to ‘save’ SS again turns out to be.
AJ
Toss in some cap gains and some interest on top of SS and a Roth conversion, and it is easier to get IRMAA’ed that you might think.
Yes. But, again, it’s not really that big of a deal.
The highest IRMAA – for Joint > $750,000, Single $500,000 – is $578/mo.
While we were still on my ex-employer’s pre-Medicare health insurance our premium was $1,000/mo (each). And we had a heck of a lot less than $750,000 income.
Yes. But, again, it’s not really that big of a deal.
The highest IRMAA – for Joint > $750,000, Single $500,000 – is $578/mo.
While we were still on my ex-employer’s pre-Medicare health insurance our premium was $1,000/mo (each). And we had a heck of a lot less than $750,000 income.
I will point out for those who have retired early and transition to Medicare after paying premiums for their own insurance for a few years, paying IRMAA probably isn’t that big of a deal. For those who find out they have to pay IRMAA because they weren’t aware of the limits and went over them because of discretionary income, like Roth conversions, or because they got some income they weren’t expecting - it probably is a bigger deal, at least from an annoyance perspective, even if not from an actual financial perspective.
AJ
I don’t recall seeing this mentioned:
IIRC, IRMAA is based on the tax year two years ago.
Ie tax year 2021 determines IRMAA for 2023.
2022 determines IRMAA for 2024.
That’s also useful information?
ralph