confused about medicare threshold

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NeverGiveUP
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Joined: Mon Nov 02, 2015 3:31 pm

confused about medicare threshold

Post by NeverGiveUP » Wed Oct 10, 2018 4:26 pm

I believe I will have to pay a higher premium for Medicare if I go above a $170,000 threshold.
I am unclear what amount the threshold represents.

I have the following income sources:
1) taxable pension
2) taxable part-time job
3) taxable windfall from insurance policy
4) taxable interest and dividends
5) interest and dividends from Roths and T-IRAs

I know that #1 through #4 are included in the calculation for the threshold amount.

Questions:
Is #5 included in the $170,000 threshold?

And is the threshold amount figured before or after taking the standard federal deduction?

Thanks for any help and education :)

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Rob54keep
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Re: confused about medicare threshold

Post by Rob54keep » Wed Oct 10, 2018 4:38 pm

The threshold of $170k is for married filing jointly ($85k if single) and is the adjusted gross income (AGI). The AGI is before taking the standard deduction. Interest & dividends from t-IRA's count only is they are IRA distributions in that tax year. If they are just reinvested, they do not count.

NeverGiveUP
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Joined: Mon Nov 02, 2015 3:31 pm

Re: confused about medicare threshold

Post by NeverGiveUP » Wed Oct 10, 2018 4:55 pm

OP here - yes I am married, filing jointly. Sorry I forgot to include that...

retiredjg
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Re: confused about medicare threshold

Post by retiredjg » Wed Oct 10, 2018 4:56 pm

Interest and dividends from Roth IRA and tIRA are never counted in anything that I can think of. If you take any money from the tIRA, that would be taxable under most circumstances though.

The IRMAA MAGI threshold of $170k for a couple filing jointly is your AGI (line 37 on Form 1040) plus income from tax-exempt bonds (muni bonds) that are held in a taxable account. So for people who hold munis in their taxable account, the MAGI for IRMAA is higher than the AGI.

AGI is taxable income BEFORE the standard deduction of $24k for a married couple. You do not get to subtract the $24k for this.

The IRMAA threshold of $170k is a cliff. If you go even $1 over, each of you (if both on Medicare) will pay a higher Medicare premium for the year concerned. Before I knew about IRMAA, I stumbled over it by just a bit one year as the result of some muni bond income. I was a bit miffed and had nobody to blame. :happy

The Wizard
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Location: Reading, MA

Re: confused about medicare threshold

Post by The Wizard » Wed Oct 10, 2018 6:22 pm

Others have posted correctly.
There are several IRMAA thresholds, not just the $85,000 per person one.
It's bad financial management to be "just over" a threshold due to the cliff effect.

Main actionable thing for most of us regarding AGI and the IRMAA tiers is Roth conversions. So be careful doing large Roth conversions until around this time of year when you have a good idea what your AGI from other source is.

And there's nothing bad about being in a higher IRMAA tier "forever". Many of us are, including me...
Attempted new signature...

NeverGiveUP
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Re: confused about medicare threshold

Post by NeverGiveUP » Wed Oct 10, 2018 6:46 pm

With the help from all of you I now understand the answer to my original questions.
But now I have another related question.

Does a conversion from a T-IRA to Roth count in the calculation of MAGI for determining if we will be over the $170,000 threshold for Medicare premiums?

I understand that such a conversion will be taxable and I am prepared for that.

I haven't seen a definitive answer - some explanations indicate that the conversion does not count toward Medicare MAGI, but others contradict that.

Does anyone have experience with that?

The Wizard
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Location: Reading, MA

Re: confused about medicare threshold

Post by The Wizard » Wed Oct 10, 2018 6:59 pm

NeverGiveUP wrote:
Wed Oct 10, 2018 6:46 pm
With the help from all of you I now understand the answer to my original questions.
But now I have another related question.

Does a conversion from a T-IRA to Roth count in the calculation of MAGI for determining if we will be over the $170,000 threshold for Medicare premiums?

I understand that such a conversion will be taxable and I am prepared for that...
It certainly does, which is why I mentioned it in my preceding reply...
Attempted new signature...

retiredjg
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Re: confused about medicare threshold

Post by retiredjg » Wed Oct 10, 2018 7:49 pm

Not sure what you saw, but a Roth conversion of previously untaxed money is reported as income and included in your AGI.

Spirit Rider
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Re: confused about medicare threshold

Post by Spirit Rider » Wed Oct 10, 2018 8:07 pm

What you might have seen was that Roth conversions do not change your direct Roth contribution MAGI.

There are different MAGI calculations. The IRMAA MAGI calculations includes Roth conversions.

The Wizard
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Re: confused about medicare threshold

Post by The Wizard » Wed Oct 10, 2018 8:19 pm

Spirit Rider wrote:
Wed Oct 10, 2018 8:07 pm
What you might have seen was that Roth conversions do not change your direct Roth contribution MAGI.

There are different MAGI calculations. The IRMAA MAGI calculations includes Roth conversions.
Right.
The IRS has a few different MAGIs to keep taxpayers off balance.
But there's only one AGI so far as I know and that's usually the start for computing one of the MAGIs...
Attempted new signature...

retiredjg
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Re: confused about medicare threshold

Post by retiredjg » Thu Oct 11, 2018 6:14 am

Spirit Rider wrote:
Wed Oct 10, 2018 8:07 pm
What you might have seen was that Roth conversions do not change your direct Roth contribution MAGI.
Always learning something here. I don't recall having heard this before. :happy

NeverGiveUP
Posts: 24
Joined: Mon Nov 02, 2015 3:31 pm

Re: confused about medicare threshold

Post by NeverGiveUP » Thu Oct 11, 2018 7:01 am

Thanks to all of you I now understand.
I was confusing 'direct Roth contribution MAGI' and 'IRMAA MAGI'.
Thanks very much to all for taking the time to educate me :)

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