RMD and Roth Conversion PRO-RATA and IRMAA?

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jimcrawford01
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RMD and Roth Conversion PRO-RATA and IRMAA?

Post by jimcrawford01 »

About 15% of my tIRA is post tax $$.
So, I when I RMD and/or Roth CONVERT, I take the Total W/D and multiply by .85 and that is the Taxable amount that is added to my Income.
Question:
Is the 15% that is NOT taxable included in IRMAA calculation?
TIA.
Nowizard
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by Nowizard »

IRMAA is based on AGI.

Tim
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FiveK
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by FiveK »

Nowizard already answered the direct question.

See https://www.bogleheads.org/wiki/MAGI#MA ... A_tiers.29 for more details on the IRMAA MAGI.
cas
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by cas »

FiveK wrote: Fri Dec 27, 2019 9:44 pm Nowizard already answered the direct question.

See https://www.bogleheads.org/wiki/MAGI#MA ... A_tiers.29 for more details on the IRMAA MAGI.
FiveK? Do you happen to have edit privileges on the wiki?

There was a discussion about IRMAA MAGI earlier this week, and the general conclusion seems to be that the description of IRMAA MAGI in the Boglehead's wiki is incomplete.

Request here from retiredjg for a fix in the wiki: viewtopic.php?f=2&t=298261#p4907803

And here is the post from me that retiredjg refers to (from earlier in the thread), containing references to the text of the law defining IRMAA MAGI and translation of the law into readable English by the Congressional Research Service: viewtopic.php?f=2&t=298261#p4906208

(But the text of that law, as I said, is beyond my abilities and patience. I could be wrong. But from what I can see, the Congressional Research Service tracked down all the "Section" references more thoroughly that what is in the Boglehead's wiki. On top of that, I have zero idea how many Medicare recipients deduct savings bond interest or have non-AGI income from US territories ... probably not a huge number ... but ...)
retiredjg
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by retiredjg »

cas wrote: Sat Dec 28, 2019 8:04 am
FiveK wrote: Fri Dec 27, 2019 9:44 pm Nowizard already answered the direct question.

See https://www.bogleheads.org/wiki/MAGI#MA ... A_tiers.29 for more details on the IRMAA MAGI.
FiveK? Do you happen to have edit privileges on the wiki?

There was a discussion about IRMAA MAGI earlier this week, and the general conclusion seems to be that the description of IRMAA MAGI in the Boglehead's wiki is incomplete.

Request here from retiredjg for a fix in the wiki: viewtopic.php?f=2&t=298261#p4907803

And here is the post from me that retiredjg refers to (from earlier in the thread), containing references to the text of the law defining IRMAA MAGI and translation of the law into readable English by the Congressional Research Service: viewtopic.php?f=2&t=298261#p4906208

(But the text of that law, as I said, is beyond my abilities and patience. I could be wrong. But from what I can see, the Congressional Research Service tracked down all the "Section" references more thoroughly that what is in the Boglehead's wiki. On top of that, I have zero idea how many Medicare recipients deduct savings bond interest or have non-AGI income from US territories ... probably not a huge number ... but ...)
Yes, I did wish for that. This should probably be requested through the "suggestions for the wiki" thread. I just have not gotten around to it.

Edit: Ok, it's done.
retiredjg
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by retiredjg »

jimcrawford01 wrote: Fri Dec 27, 2019 10:59 am About 15% of my tIRA is post tax $$.
So, I when I RMD and/or Roth CONVERT, I take the Total W/D and multiply by .85 and that is the Taxable amount that is added to my Income.
Question:
Is the 15% that is NOT taxable included in IRMAA calculation?
TIA.
No. The not taxable part is not part of the AGI so it is not included for IRMAA calculations.

But this brings up an interesting thought about the RMD. It seems your RMD will not be fully taxable if it has non-deductible contributions. I had just never thought of that before.
elainet7
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by elainet7 »

medicare part b based on MAGI, AGI plus tax free income
retiredjg
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by retiredjg »

elainet7 wrote: Sat Dec 28, 2019 8:51 am medicare part b based on MAGI, AGI plus tax free income
....And a few other things that don't apply to a lot of people but which should be included in the SS publications anyway. :happy
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jimcrawford01
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by jimcrawford01 »

jimcrawford01 wrote: Fri Dec 27, 2019 10:59 am About 15% of my tIRA is post tax $$.
So, I when I RMD and/or Roth CONVERT, I take the Total W/D and multiply by .85 and that is the Taxable amount that is added to my Income.
Question:
Is the 15% that is NOT taxable included in IRMAA calculation?
TIA.
OP here.
Thank you to retiredjg and cas! Your patience and tenacity are noted much appreciated.
So, the answer to my question is indeed NO, the 15% (as determined by an excursion through the Form 8606) is not included in the IRMAA calculation. The reason appears to be that it is already included as "non taxable" in the AGI calculation.
As I suspected:
MAGI = AGI + Other Stuff. Typically, the "Other Stuff" might be Tax Exempt Interest. Beware.
I agree that the BH Wiki was not as helpful or complete. Also, the Internet, source of all truth and knowledge :happy, can be quite misleading.
Finally, this stuff should not be that difficult. Shame on the politicians who create and perpetuate this difficulty!
Jim
Alan S.
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by Alan S. »

Along those lines - while the non taxable portion of a TIRA or Roth IRA distribution is not included in the MAGI for IRMAA purposes, tax exempt INTEREST is. So if you have munis you must add the interest to your MAGI for IRMAA purposes.

The tax code maintains multiple definitions of the same term (MAGI, qualified plan, transfer, etc) depending on which section of the code the term is being applied to.

So happens that munis are mostly purchased by higher bracket taxpayers, the exact people prone to IRMAA surcharges.
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FiveK
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by FiveK »

cas wrote: Sat Dec 28, 2019 8:04 am
FiveK wrote: Fri Dec 27, 2019 9:44 pm Nowizard already answered the direct question.

See https://www.bogleheads.org/wiki/MAGI#MA ... A_tiers.29 for more details on the IRMAA MAGI.
FiveK? Do you happen to have edit privileges on the wiki?

There was a discussion about IRMAA MAGI earlier this week, and the general conclusion seems to be that the description of IRMAA MAGI in the Boglehead's wiki is incomplete.

Request here from retiredjg for a fix in the wiki: viewtopic.php?f=2&t=298261#p4907803

And here is the post from me that retiredjg refers to (from earlier in the thread), containing references to the text of the law defining IRMAA MAGI and translation of the law into readable English by the Congressional Research Service: viewtopic.php?f=2&t=298261#p4906208

(But the text of that law, as I said, is beyond my abilities and patience. I could be wrong. But from what I can see, the Congressional Research Service tracked down all the "Section" references more thoroughly that what is in the Boglehead's wiki. On top of that, I have zero idea how many Medicare recipients deduct savings bond interest or have non-AGI income from US territories ... probably not a huge number ... but ...)
Wiki updated. If that doesn't capture what's needed, suggest away!
retiredjg
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by retiredjg »

Very nicely explained. Clearer than a lot of the other stuff we've seen, some of which was just downright wrong.

Would you mind just adding the savings bond thing too?


Many web sites have incomplete information about this MAGI. For example, page 2 of "Medicare Premiums: Rules For Higher-Income Beneficiaries". Social Security Administration. 2019. mentions the tax-exempt interest but neglects to mention the necessary addition of the foreign items or income from US Savings bonds used to pay higher education tuition and fees.
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FiveK
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by FiveK »

retiredjg wrote: Sat Dec 28, 2019 5:18 pm Very nicely explained. Clearer than a lot of the other stuff we've seen, some of which was just downright wrong.

Would you mind just adding the savings bond thing too?


Many web sites have incomplete information about this MAGI. For example, page 2 of "Medicare Premiums: Rules For Higher-Income Beneficiaries". Social Security Administration. 2019. mentions the tax-exempt interest but neglects to mention the necessary addition of the foreign items or income from US Savings bonds used to pay higher education tuition and fees.
Done - thanks for the suggestion.
retiredjg
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by retiredjg »

Looks perfect to me. :wink:

With those changes, I'm now comfortable referring people to the wiki on this issue.
Alan S.
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by Alan S. »

I suppose SSA pulls the amount on line 3 of Sch B and adds it to AGI to determine IRMAA MAGI.

However, has anyone ever completed Form 8815 to calculate it's own definition of MAGI (line 9)? This MAGI mutant is the worst yet, and is needed to determine the excludable saving bond interest that goes on line 3 of Sch B to generate the much simpler IRMAA MAGI?

https://www.irs.gov/pub/irs-pdf/f8815.pdf

I have an evil idea for the next CPA exam! :twisted:
cas
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by cas »

FiveK wrote: Sat Dec 28, 2019 4:18 pm Wiki updated. If that doesn't capture what's needed, suggest away!
Thanks. That is a good approach.

The only suggestion I might make is to clarify the legalese sentence (from the tax code) about the tax-exempt interest, since that is likely far and away the most common type of add-on. If someone comes to the wiki not knowing that muni-bond interest needs to be added back in, I'm thinking that their eyes might have glazed over before getting to the meaning of "amount of interest received or accrued during the taxable year which is exempt from tax under such Code."

Meanwhile there is the nice list of all the other less-common add-ons that catches the eye.

I know the tax-exempt interest in mentioned under the discussion of the failings of the SS document, but that is in a different context and doesn't sit up and say "Hey. I'm tax-exempt interest and I'm in the list of possible add-ons along with the other 4 less-common items."

Maybe, after the explanation of the "Section" references, add a sentence something like

The words "increased by the amount of interest [. . .] which is exempt from tax" means that tax-exempt interest received from municipal bonds or municipal bond mutual funds must be added to AGI to calculate MAGI for the IRMAA tiers.

(It exceeds my knowledge to know whether there is tax-exempt interest other than muni-bond interest.)

If other people think the mention of tax-exempt interest in the sentence about the SS document failings is enough, I'm ok with that too.
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FiveK
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by FiveK »

cas wrote: Sat Dec 28, 2019 7:23 pm Maybe, after the explanation of the "Section" references, add a sentence something like

The words "increased by the amount of interest [. . .] which is exempt from tax" means that tax-exempt interest received from municipal bonds or municipal bond mutual funds must be added to AGI to calculate MAGI for the IRMAA tiers.

(It exceeds my knowledge to know whether there is tax-exempt interest other than muni-bond interest.)
Don't know the answer to the last sentence. Would "...means the amount one enters in Box 2A of the 2019 Form 1040 must be added..." be any more helpful?
2cents2
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by 2cents2 »

Are tax deferred contributions added back in for the purposes of calculating IRMAA MAGI ?
cas
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by cas »

2cents2 wrote: Sun Dec 29, 2019 8:33 am Are tax deferred contributions added back in for the purposes of calculating IRMAA MAGI ?
You mean tax-deferred contributions like to a 401(k) or traditional IRA?

No, those are not added back in for the purposes of IRMAA MAGI.

Was our discussion about "tax-exempt" being added back in confusing you? (If so, we probably really do need to figure out good wording on that for the wiki.)
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by retiredjg »

2cents2 wrote: Sun Dec 29, 2019 8:33 am Are tax deferred contributions added back in for the purposes of calculating IRMAA MAGI ?
No. Tax deferred contributions are not included in AGI. They are not added back in to get the MAGI for IRMAA either.

The tax-exempt interest that is being discussed means the interest from tax-exempt muni bonds.
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by 2cents2 »

cas wrote: Sun Dec 29, 2019 8:48 am
2cents2 wrote: Sun Dec 29, 2019 8:33 am Are tax deferred contributions added back in for the purposes of calculating IRMAA MAGI ?
You mean tax-deferred contributions like to a 401(k) or traditional IRA?

No, those are not added back in for the purposes of IRMAA MAGI.

Was our discussion about "tax-exempt" being added back in confusing you? (If so, we probably really do need to figure out good wording on that for the wiki.)
Yes, that is what I meant--401k pre-tax contributions.
Sorry, no, the discussion about "tax-exempt" items wasn't confusing me. I considered starting a new thread to ask this specific question, but there are so many IRMAA threads. From the documentation that was listed (for income that was added back in or "the nice list of all the other less-common add-ons") it seemed that this was not something that was added back in, but I thought I might have been overlooking something.
Last edited by 2cents2 on Sun Dec 29, 2019 10:21 am, edited 1 time in total.
cas
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by cas »

FiveK wrote: Sun Dec 29, 2019 12:01 am
cas wrote: Sat Dec 28, 2019 7:23 pm (It exceeds my knowledge to know whether there is tax-exempt interest other than muni-bond interest.)
Don't know the answer to the last sentence. Would "...means the amount one enters in Box 2A of the 2019 Form 1040 must be added..." be any more helpful?
What is wiki policy on adding stuff that "breaks" if the IRS changes box numbers on tax forms?

Does this approach help any?

This MAGI is defined in 42 U.S.C. 1395r(i)(4), from the Social Security Act §1839:
(4) Modified adjusted gross income.
(A) In general.—For purposes of this subsection, the term “modified adjusted gross income” means adjusted gross income (as defined in section 62 of the Internal Revenue Code of 1986)—
(i) determined without regard to sections 135, 911, 931, and 933 of such Code; and
(ii) increased by the amount of interest received or accrued during the taxable year which is exempt from tax under such Code.


Tax-exempt interest from municipal bonds is the most common item that must be added to AGI to calculate MAGI for IRMAA tiers. [could also add the reference to box 2a of the 2019 Form 1040.
Or not, if it is preferred to keep the wiki text free of references to things that can change.]


The U.S. Code also specifies less common items that must be added.

The words "determined without regard to" mean that any income not included in Form 1040 Adjusted Gross Income (AGI) due to those code sections must be added to AGI to calculate MAGI for the IRMAA tiers.
26 U.S. Code § 135 refers to income from U.S. savings bonds used to pay higher education tuition and fees.
26 U.S. Code § 911 refers to income from citizens or residents of the United States living abroad.
26 U.S. Code § 931 refers to income from sources within Guam, American Samoa, or the Northern Mariana Islands.
26 U.S. Code § 933 refers to income from sources within Puerto Rico.

Many web sites have incomplete information about this MAGI. For example, page 2 of "Medicare Premiums: Rules For Higher-Income Beneficiaries". Social Security Administration. 2019. mentions the tax-exempt interest but neglects to mention the necessary addition of the foreign items or income from US Savings bonds used to pay higher education tuition and fees.
retiredjg
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by retiredjg »

How about....


This MAGI is defined in 42 U.S.C. 1395r(i)(4), from the Social Security Act §1839:
(4) Modified adjusted gross income.
(A) In general.—For purposes of this subsection, the term “modified adjusted gross income” means adjusted gross income (as defined in section 62 of the Internal Revenue Code of 1986)—
(i) determined without regard to sections 135, 911, 931, and 933 of such Code; and
(ii) increased by the amount of interest received or accrued during the taxable year which is exempt from tax under such Code.

Tax-exempt interest from municipal bonds [(4)(A)(ii) above] is the most common item that must be added to AGI to calculate MAGI for IRMAA tiers.

The U.S. Code also specifies less common items that must be added. And so on...
cas
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Re: RMD and Roth Conversion PRO-RATA and IRMAA?

Post by cas »

retiredjg wrote: Sun Dec 29, 2019 10:34 am How about....


Tax-exempt interest from municipal bonds [(4)(A)(ii) above] is the most common item that must be added to AGI to calculate MAGI for IRMAA tiers.

The U.S. Code also specifies less common items that must be added. And so on...
Yes, I think adding the [(4)(A)(ii) above] reference makes it more clear.
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