minimizing MAGI to reduce medicare IRMAA
My former employer is keeping me on as a part-time employee, hopefully even after I turn 70.5, so that I can defer RMD’s indefinitely by staying in the 401k.
I am also lucky in that more than half of my retirement savings are in a post-tax individual brokerage account, so I can use this money to optimize declarable income to minimize taxation impact to Social Security and Medicare IRMAA costs, as well as LTCG taxes for the next few years.
One key point is to keep my AGI below $37,900 (soon $45,000?) until I turn 70.5. If I can accomplish this for the next 5 years I will be able to bleed off all the accumulated LTCG in my post-tax individual brokerage account at a zero tax rate. Am I reading the rules correctly?
Another factor is to control the MAGI as calculated for determining what your Medicare insurance will cost you. They call increased Medicare fees IRMAA.
Herein lies second question: Can I work up to (or a controlled limit beyond) the maximum 401k contribution and put all my post-SS/Medicare-tax income into the 401k? I’m pretty sure this money will not increase my AGI, but is it also invisible on the MAGI as calculated for determining my Medicare IRMAA?
Once I start SocSecBen at age 70 all this will be effectively blown out of the water, and I’ll need a new strategy, but I’m hoping I can follow this plan during these “Golden Years”. Please let me know if this all makes sense.
Permalink Submitted by Alan - IRA critic on Wed, 2017-11-22 04:21
Yes, any 401k elective deferrals you make will reduce your MAGI and help keep you in the 15% bracket where your LT cap gains and qualified dividends will not be taxed. That limit is 37,900 in taxable income in 2017. The IRMAA threshold is much higher, 85,000 of MAGI. You might not be able to avoid that once RMDs and SS starts. Once you reach 70.5, you need to be sure your hours do not drop below the plan threshold to be considered active. Once you are considered retired, you can no longer contribute AND your RMDs will start. Once they start, you cannot stop them by increasing your hours later on.
Permalink Submitted by Don Goldston on Wed, 2017-11-22 13:34
Thanks for the confirmation. The magi question was more aimed at this year, since I had worked full time part of the year before going part time, I put the max into elctive deferrals hoping that would keep me under 85k IRMAA limit. Looks like it will work, and thanks for your confirmation. There is a lot of conflicting information on this on the web.Our plan is interesting, in that it does not mention a minimum number of hours, and specifically allows part time. Since the government rule on the still working exception does not express a minimum percentage employment. My boss wants to keep guys like me available for consultation, so I will get some hours every year, probably until start drooling. My boss, who started the company is a pretty smart cookie, and got some truly expert help to design the plan for maximum flexibility. He did it for his employees, not for himself, since he owns too much of the company to use a lot of the exceptions. Until he sells the company I should stay employed and enrolled in the 401k.