This is the time of the year I make my initial Roth Conversion. A conservative amount to ensure I remain under the 24% bracket max. Then near year end, after numbers are more certain, I make a smaller conversion to get my toes up closer to that line.
This year, with Medicare on the horizon, I had to take into effect the various IRMAA tiers. My 2022 AGI will determine my 2024 Medicare Part B rates and Part D surcharge. I was saddened to learn that I cannot reach for the top of the 24% bracket they way I had been for the past several years.
If I go for the 24% max in 2022, that will put me $9,000 into the next IRMAA tier and increase my 2024 premium by $102/mo just on part B. So the extra $9,000 into the Roth comes at $1,200 annual IRMAA cost, effectively a $13% tax on the extra $9K Roth contribution.
So alas my goal for converting 100% of my TIRA to Roth will have to stretch out a few extra years because of IRMAA. I should have started on the Roth Conversion bandwagon about ten years sooner than I did. Food for thought.
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effectively a $13% tax on the extra $9K Roth contribution.
Sorry. Terminology and a spurious $ sign. Should be
"effectively a 13% tax on the extra $9K Roth conversion."
bighairymike:
<<If I go for the 24% max in 2022, that will put me $9,000 into the next IRMAA tier and increase my 2024 premium by $102/mo just on part B. So the extra $9,000 into the Roth comes at $1,200 annual IRMAA cost, effectively a $13% tax on the extra $9K Roth conversion>>
Your math is only correct if you have a January birthday in 2024. IRMAA (& the rest of Medicare) only kicks in when you are actually 65. Turn 65 in July, pay IRMAA for 6 months, December B-day= 1 measly month of IRMAA.
Run the numbers, the tax may less than you thought.
OTOH, if you were born in JAN, never mind!
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Your math is only correct if you have a January birthday in 2024. IRMAA (& the rest of Medicare) only kicks in when you are actually 65. Turn 65 in July, pay IRMAA for 6 months, December B-day= 1 measly month of IRMAA.
Run the numbers, the tax may less than you thought. - SnootFool
Thank you for that optimistic possibility. It certainly could be a factor to others reading this thread and doing their planning.
However, there is another scenario where my math is correct. That being I am already 65, in fact I am 70. When I said, I am looking at Medicare in two years, what I was getting at was, in all likelihood, I will be off the Group Plan I presently enjoy by that time.
So alas my goal for converting 100% of my TIRA to Roth…
IIRC you are using your Roth as an inheritance tool, but remember that as you age medical costs are likely to go up and you may be able to deduct those costs against income. In the very least this may help you to convert more while keeping income low? I am not great on the way taxes roll out in practice vs theory so take this with a grain of salt and do your own DD.
IP
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