RMD & IRMAA may allow more IRA conversions
Based on the rate of inflation thus far, I read somewhere and suspect it to be true that the IRMA for 2023 will be at least 10k more than it is presently .. for MFJ it’s 182. I realize that todays value applies to my income from 2 years ago and it’s that relationship that would drive a 40% + premium on both of our Medicare premiums (MFJ). I’d like to convert as much of my TIRA to Roth as I can within that self-imposed MAGI limit. Anyone think inflation will change so dramatically that what’s transpired thus far will be cancelled out ?
Also interested in the likelihood that my RMD will not have to be taken next year even though I’ll be 72 in Sept of 2023. It seems the proposed Secure Act 2.0 had overwhelming support 414-5 in the house so hopefully this too will materialize and give me a little more room to convert before RMDs begin closing my window.
Permalink Submitted by Alan - IRA critic on Fri, 2022-05-06 21:51
For the last 2 years, just about every expert opinion has turned out wrong. The so called experts at the Fed called inflation transitory for several months and watched it spin wildly out of control. Likewise, legislative agendas usually go nowhere in election years, and legislation that has passed in the last few years tends to be signed into law in the final 2 weeks of the year, leaving little time for planning.
Accordingly, I would not try to convert to the very max MAGI figure you expect to fall under the first IRMAA tier, because outsize interest rate increases could trigger a recession quite soon that would tamp down inflation.
If the House passes Secure 2.0, the Senate will modify it to some extent. Your targeted conversion would probably be done in December when you have a better idea of the status of Secure 2.0 and the effects of several more aggressive Fed rate increases.
Permalink Submitted by RonC on Sat, 2022-05-07 17:02
I appreciate your reply and couldn’t agree more. I hope you will elaborate on why I shouldn’t try to convert max. Is it because TIRA value shrinks in a recession so I’d pay taxes on a larger amount if I convert beforehand ? My goal is to reduce RMDs to open window for future year conversions. Waiting until Dec is completely understood .. paying sufficient taxes in 1st three periods to be consistent with Dec is ongoing challenge. What is meant by “outsize interest rate” ? Sincere thanks
Permalink Submitted by David Mertz on Sat, 2022-05-07 20:59
I think that Alan was just concerned that if you try to get to close to the max you run the risk of underestimating your AGI or overestimating the threshold and inadvertently triggering an additional $2,000 or so of IRMAA by going even slightly over the threshold. That would be a big penalty to pay for being a bit too aggressive.
Permalink Submitted by RonC on Sat, 2022-05-07 21:38
I stay within the boundaries as currently defined. So once the number comes out around election day, I can work on my year-end conversion. During the year, while market is down can be a good time to convert some. If the IRMAA was to go down and my MAGI from two years prior exceeded it, the 2k+ “penalty” would apply. I just wondered if “outsize” was a typo or what it meant.