Possibility of reducing MAGI with recharacterization

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Topic Author
Loon11
Posts: 284
Joined: Wed Feb 29, 2012 6:07 pm

Possibility of reducing MAGI with recharacterization

Post by Loon11 » Wed Oct 09, 2019 9:20 pm

Just read another thread where someone indicated one can recharacterize a Roth contribution done in 2018 up until Oct. 15, 2019. I am sure we will be over the 170K limit for Irmaa. My taxes were MFJ and our AGI was 169500 for 2018. I thought we would be OK but we had $6K in tax exempt bond dividends which will be added to AGI plus another $2K of SS payment that did not get taxed. I didn't realize all this would be added back into AGI until I read up on how the calculation is done.
So I was wondering if I can take the $7K we put into the Roth for 2018 and change it to a deductible IRA in the next few days? That would take us below the threshhold. I'm probably missing something here but would be nice to avoid that higher medicare part B premium for a year.
We should be OK for 2021 since in 2018 we had some extra income that was added to AGI (cashed out 2 life policies not realizing they would add to AGI).
Thanks for your help.

Topic Author
Loon11
Posts: 284
Joined: Wed Feb 29, 2012 6:07 pm

Re: Possibility of reducing MAGI with recharacterization

Post by Loon11 » Wed Oct 09, 2019 9:39 pm

My apologies!! Please disregard the question - I realized this cannot be done - any deduction for an IRA would be added back into income so it would not help to reduce MAGI. Sorry for my confusion, or rather my wishful thinking of ways to reduce modified income.

Alan S.
Posts: 8624
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Possibility of reducing MAGI with recharacterization

Post by Alan S. » Thu Oct 10, 2019 10:12 am

Loon11 wrote:
Wed Oct 09, 2019 9:39 pm
My apologies!! Please disregard the question - I realized this cannot be done - any deduction for an IRA would be added back into income so it would not help to reduce MAGI. Sorry for my confusion, or rather my wishful thinking of ways to reduce modified income.
No, that is incorrect. You may be looking at the version of MAGI used to calculate the deduction itself, not the MAGI used for IRMAA consideration. An IRA deduction WILL reduce your AGI for IRMAA purposes.

However, there are still other issues:
1) Can you even deduct a TIRA contribution in the first place? MAGI for the deduction itself DOES add back the IRA deduction and certain other deductions. Your joint MAGI is too high to deduct a TIRA contribution for the spouse that made the initial contribution IF that spouse is a participant in a workplace retirement plan. So you need to determine WHICH spouse's Roth received the contribution and if THAT spouse was a participant. Check the retirement plan box on that spouse's 2018 W-2 forms. If it is checked, there will not be a deduction since MAGI will be far over the limit.
2) Probably too late to recharacterize anyway with many custodians, certainly for those that require a mailed in form.
3) Reducing your 2018 MAGI for IRMAA purposes will affect IRMAA for 2020. In 2020 there will be a modest inflation adjustment for the IRMAA tiers - for example the first tier might actually be 171-172k.

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