Roth Conversions + IRMAA: How to Plan Correctly (Part 1)

Timestamps:
0:00 Roth Conversions + IRMAA
0:17 What is IRMAA?
1:18 2025 IRMAA Brackets
2:05 Step #1 in Retirement Tax Planning
4:21 Difficulties with IRMAA
5:17 A Common IRMAA Mistake
5:54 IRMAA Calculations the Right Way
8:07 The Marginal Cost of Each IRMAA Zone
9:18 Best IRMAA Practices

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Always remember, "You Don't Need More Money; You Need a Better Plan"

[bluesky]

Super job as usual. That's why this channel is the best. Keep on trucking and thank you

[hoytoy]

I’m aggressively doing large conversions for the next 4-6 years and going to bite the bullet on IRRMA. Just retired so income plummeted, but we have pensions so our income brackets do not drop out. Will delay SS, but want to convert to get that sweet tax free growth starting now. Gotta pay the tax man eventually, we have the capability to do it now at 64 to avoid RMD.

[viking_fisherman]

It’s impossible to make good financial decisions without a full understanding of the financial context in which you live. These videos are so informative and invaluable in my gaining a full understanding of complexities or retirement

[DennisLawyer]

Thanks for all your great videos. Looking forward to part 2 of this video. For married couples, adjusting your income to the $266, 000 modified AGI will most likely trigger Net Investment Income Tax (NIIT) of 3.8%. This needs to be factored into your calculation. Hopefully you will discuss in part 2. I have lowered my brokerage account so that I limit the amount I will need to pay, but everyone's situation is really variable on this tax! I would appreciate a video on Alternate Minimum Tax (AMT) on when and how I might cross the line to have to pay this tax for retirees.

[ld]

Hi Eric. This was a very good discussion on a somewhat confusing topic. This will be helpful to many of your followers I'm sure. Looking forward to part 2. Larry, Central Valley, Ca.

[jettdad]

From a more practical perspective. All this precision is fine if you can predict exactly what your MAGI is going to be. But if you have variable income like rentals and occasional consulting jobs with international income, prediction of the exact amount of MAGI becomes an exercise in futility with a big penalty if you guess wrong. You talk about learning to relax and enjoying your retirement. I do not consider stressing about IRMAA calculations, ROTH conversions and going one dollar over the next cliff 'enjoying retirement.' My plan; 1. Do a conversion early in the year. About 50% of my best guess as to the final conversion. 2. Maybe another conversion about the middle of the year as income becomes more clear. 3. In November-December, after the next year IRMAA brackets are published and the MAGI estimation is close, do a final conversion to get close to the next year brackets. Disadvantage: You will leave a few thousand ROTH conversion dollars 'on the table'. Advantages: 1. Simple, easy to calculate, and low stress. 2. Almost guaranteed to not fall off the cliff of the next bracket.
The channel is good and working through the details to educate people, especially those that want to plunge into the details and squeeze out every tax dollar, is very good. However, I think it would also be very helpful if you put a little addendum on the end of the video that is basically 'if you don't want to go through all this crap, here is a easy way to get a non-optimized but reasonable outcome.' Thanks.

[peterdavis]

Over 70 and single and doing the whole conversion at once. Heavy tax and 4 levels of IRMAA hit but done with it before RMD's become a thing.

[RodHardin]

Excellent! Too bad the brackets and the zones don't match up, that some are cliffs like IRMAA, and we have multiple income numbers (AGI/MAGI/Provisional Income). I don't think MAGI even shows on the 1040 form. Insanity. Thanks again for helping me make sense of all this.

[greghanna]

If you have a large enough portfolio you can spend some of it or convert some of it to the top of the first level IRMA bracket and it's not going to affect you as much as feared if you have a good budget and good enough regular income.

[ericbauer]

Very helpful combination analysis. Very practical. Thanks!

[NFKevin]

Eric, at 1:18 you state "you aren't allowed to take the normal standard deduction". Would you explain that? The SSA says MAGI for IRMAA purposes is simply your Form 1040 line 11 (AGI) plus line 2a (tax-exempt interest income). It makes no mention of the standard deduction.

[rc]

It's interesting that the perspective of the majority of financial and retirement planners, Medicare specialists, etc. seems to be that we should avoid IRMAA surcharges like "the plague". While no one wants to pay more than they absolutely need to, paying IRMAA surcharges can actually save money in the long run if done as part of a thoughtful plan intended to avoid even more taxes in the future. For example, any significant Roth conversion can easily result in IRMAA surcharges if it is done at 63 years of age, or later. However, paying IRMAA surcharges for just a few years while effecting meaningful Roth conversions can save a person far more in future income taxes than the IRMAA surcharges. So, avoiding IRMAA shouldn't necessarily be the goal, but rather, minimizing total payments (i.e., income taxes, service fees, insurance premiums, etc.) to the government is the better goal.

[EatLeadPal]

I'm 63 and just did my first conversion in 2024. I'm doing another large one in 2025 and IRMAA is going to kill me. However, I'm doing it for a specific reason. I'll just have to suffer through my first couple years of Medicare.

[geoffreyfaust]

What are the chances of a technical correction style tax bill, so that the IRMAA threshhold comes on gradually, rather than falling off a cliff?

[timjacobs]

I'm a bit confused by your examples. Example 1 looks as I would expect 1092/8000, but example 2 you divide 1092 by 28000 instead of 29999. I also cannot come up with the marginal rates in the table that follows by dividing added costs by the size of the brackets. What am I missing? Thanks.

[jhacx]

One strategy that I have not seen discussed is how to use the fact that only one member of the household is on Medicare and subject to IRMAA penalty in performing the effective rate calculations to decide the value of Roth conversion amounts. If the second person then becomes eligible for Medicare perhaps in a partial year say October then will they only be subject to that IRMAA penalty for 3 months until December instead of the full 12 months ? Or is the IRMAA year based on different dates than the calendar year.

[PH-dmew]

am i not correct in believing the IRMAA increase only affects two years out from the conversion bumped income, and that we can ask for a readjustment it the increased income is due to a one time increase in income. I am not sure why this is a deciding factor. It is a temporary increase.

[tkc]

what if in 2025 I sell my house, IRMAA kicks in 2027, 2026 I decide to move out of the country and drop my Part B. 2029 I decide to move back and start Part B again. will my part B cost be based on 2027 and the10% penalty on that amount. could save me lots of money..

[brucestiles]

Since one can never know what the rate of inflation will be over a two-year period, wouldn't it be prudent to assume 0% inflation? For example, for MFJ, limit 2025 MAGI to just under $212, 000. Yes, you wouldn't be able to Roth convert a few thousand dollars, but you also would not be picking up quarters in front of a steam roller.

[pware]

More considerations: Do more Roth conversions IF you are going to live at least average life expectancy dying early skews the benefit.. unless married and the spouse will live a long time at the single bracket. , Watch out for NIIT tax.. which does NOT adjust for inflation ! THIS YEAR.. wait until end of year for any conversions..Congress will act on the tax code this year.. and no one knows how exactly AND with 2 up years.. the market has a good chance of correction.. so convert depreciated stock at end of yr for larger gains in future at tax free rates in the Roth later. ERIC, I wished you would do one time financial plan for DIY people.. could charge 5k for 2 hours work and use the software you already pay for..