government 457 deferred comp
Because I worked in City government and did not pay social security, I will be receiving a very low amount from social security. I cut and pasted this from an April 2015 answer:
“Roth IRA conversions are counted in the formula for figuring the taxation on Social Security because it raises your adjusted gross income. The income from a Roth conversion can impact the amount of premium an individual has to pay for Medicare Part B coverage. – See more at: https://irahelp.com/slottreport/will-i-be-affected-once-year-ira-rollover-rule#sthash.rFT1goEE.dpuf“
I am currently retired, and not working at all. If I convert my 457 to a Roth IRA or TIRA, will that amount reduce the amount of premium I will pay when I am put under Medicare?
Thanks
Permalink Submitted by Alan - IRA critic on Sat, 2015-08-01 16:31
This is a trade off that can be managed in many cases. For the years you convert, your modified AGI will increase and could pass the IRMAA threshold that causes your Medicare premiums (B and D) to increase in the second tax year after the conversion. On the other hand, each conversion will reduce your RMDs in the future, and that may save you from the same IRMAA surcharges in years to come. The iRMAA thresholds are not inflation adjusted, at least until 2019 and may well not be after that either. This means that if you are close to the threshold now, you will eventually pass it and have to pay the surcharge. While a conversion can also increase the amount of your SS included in modified AGI and therefore higher taxable income and possibly the IRMAA surcharge, since your SS benefit is low, this will probably not be much of a factor. It is complex factoring these variables together, and you would probably just do small conversions, if any, to avoid passing certain thresholds. You will need a tax program to test out various conversion amounts, but will have to determine your IRMAA MAGI separately. This would be an annual exercise, but once you are used to it you are just repeating the process every year. Finally, remember that if you mess up and convert too much, you can always recharacterize (reverse) all or part of a conversion after your tax bill is known and your IRMAA MAGI is known.