How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

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JackoC
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by JackoC »

lstone19 wrote: Sun May 01, 2022 9:04 pm
afan wrote: Sun May 01, 2022 11:05 am Talk about the tail wagging the dog! You will end up with far less money in order to save a relatively small fraction in taxes and IRMAA.

Giving up 20 years of earned income and savings to avoid IRMAA is a terrible financial plan.
Yes indeed. But I’ve seen a recurring theme here with some posters who are so opposed to paying taxes (and related like IRMAA) that they’d rather pay even more to avoid them. I’ve seen suggestions such as disclaim an inherited IRA or make QCDs* both of which are effectively 100% taxes in order to avoid paying taxes to the government.

* while we all arguably should be making charitable donations, some of these suggestions to make QCDs seem to be made strictly for the purpose of avoiding paying taxes.
Maybe there have been posts by somebody saying they find no value in giving to charity and would only do it to reduce MAGI. Which still technically could work, if you could closely enough predict MAGI to make a QCD that put you under an IRMAA threshold whose after tax cost was smaller than the extra IRMAA charge of going over that threshold. Practically that's unlikely of course, income is usually too hard to predict to that level of accuracy. But the vast majority of references here to how QCD's affect MAGI, to my recollection, have been in context of making a QCD *instead* of a contribution of cash or appreciated taxable assets, or that the perceived value of giving to charity isn't enough to justify it with the normal tax advantage, but is enough once you add in the advantage of dodging an IRMAA level. I agree if somebody perceives zero inherent benefit to giving to charity but would QCD $10k (maybe $7k after tax cost) to make sure they ended below an IRMAA threshold and saved less than half that much in Medicare costs (for a couple even): irrational. But I doubt it's the actual aim of more than a small % of posts talking about IRMAA v QCD.

Likewise if somebody suggests retiring at an earlier age because of higher taxes due to higher income/assets, this is part of the basic economics of taxation. People at the margin *will* decide to work and earn less due to taxes on what they earn than if those taxes were lower. Most people see work, set aside from pay, as a net negative and pay as the offsetting positive that makes it worthwhile ('I love this job so much I'd do it for free' is rarely literally true). And the only pay that counts is the pay after tax, including secondary and tertiary taxes on that income (taxes on investment returns on already taxed income and potential third round, estate tax). The public policy debate about that, which we can't get into here, is the trade off between subjectively determined 'necessary' tax revenue and the disincentive to produce caused by taxes. But on an individual basis it's altogether rational for some people to decide to work less than they would if taxes were lower. Their decision wouldn't necessarily be the right one for somebody else though. Some people are less sensitive to tax rates in their work decisions, ie closer to 'I'd do this for free' than others are.
Exchme
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by Exchme »

You could put bonds and to some extent International stocks in your IRA/401K to maximize your degree of control I suppose. Others have mentioned charitable giving, let me expand on Roth Conversions. For Roth Conversions, you would have to make assumptions about future life expectancy, returns, tax laws, heirs' tax rates, ACA premium credits, etc. and develop a model of cash flows and taxes year by year. Future uncertainties will overwhelm your planning, so much of your efforts are to learn about the tradeoffs, the details of future years are not actionable.

Even with static assumptions, there are many different Roth Conversion paths that end nearly at the same place. For instance, for us, it's almost the same for our final estate values after heirs pay taxes to make Roth conversions steadily to the top of the 2nd IRMAA tier throughout versus convert to the top of the 24% bracket now, then to the NIIT threshold for a couple years, then to top of the 2nd IRMAA tier until age 70 and then age 70 and 71 stay within the top of the 0% LTCG bracket and then back to the top of the 2nd IRMAA tier after RMDs start. This modeling of later years is somewhat wasted in that things will change, but within our ability to make predictions, staying in the 22/24% range will all work about the same in the end.
mnnice
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by mnnice »

afan wrote: Sun May 01, 2022 11:05 am
mnnice wrote: Mon Apr 25, 2022 8:08 am
Chardo wrote: Wed Apr 20, 2022 5:02 pm We can try to minimize IRMAA, but let's face it. IRMAA is a sign of success. If you're affected by IRMAA, you've won the game. You earned a lot and/or invested well. Give yourself a pat on the back.
Or worked too long. If you phaseout paid employment in your late 40’s or early 50’s, delay social security til 70, do some systematic conversions along the way you have lots of time to avoid IRMAA and is cousin large RMD’s
Talk about the tail wagging the dog! You will end up with far less money in order to save a relatively small fraction in taxes and IRMAA.

Giving up 20 years of earned income and savings to avoid IRMAA is a terrible financial plan.

Perhaps makes sense for someone whose real goal is retiring as early as possible. But then avoiding IRMAA is simply a consequence of planning to have less money.
I don’t really care about IRMAA and could easily end up on either side of the phase out. Retiring early had been fun and residually pretty tax efficient. No regrets.

I guess I don’t see why a retired married couple would require an income that high. Enjoy sure. Successful accumulate fine. Need $183,000 seems like a pretty fantastic life can be built in this country for way less.
RetiredAL
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by RetiredAL »

LittleMaggieMae wrote: Tue May 03, 2022 10:03 am
RetiredAL wrote: Wed Apr 20, 2022 8:20 pm
Bullhead5829 wrote: Wed Apr 20, 2022 3:22 pm While I am opposed to these, in principle, because they penalize those who lived responsibly and below their means by making them pay more for equal benefits, an alternative view is that if you are in IRMAA, NIIT, or AMT territory, the additional amounts you may have to pay are small in comparison to the additional income levels that invoke them. Others might like to be in such a situation!
"...have to pay are small in comparison to the additional income levels that invoke them." Think again!

Mom and Dad were IRMAA-0. After Mom passed, Dad went to IRMAA-3, on less income than they had before as her SS and Retirement stopped. His costs hardly went down.

After I got him to dump his advisor to get rid of all of those programmed trades that generated income, he's now at IRMAA-2 but will never be lower.

There are lots of what I feel are unfairness items with becoming the 'last one standing'.
As a life long single I feel your "unfairness" pain. But, think of all the tax benefits your parents reaped during their married years (I'm sure it also benefited you (and your siblings)). Hopefully that will take some of the edge off the feeling of "unfairness".
I concur about single. The cost to maintain an abode is only slightly increased by being married, sans kids.

MM, I will not disagree with some of the tax benefits they got over the years, some which you may never have heard of. Dad was career Navy and whenever he was in a combat zone, his pay was not taxed. He was in WW-II, Korea, and Vietnam. People like my Dad and Taylor Larimore really earned that special benefit, as did all the Korea and Vietnam vets. In WW-II, his ship's gunners (a 'Command and Control Ship', so think Liberty Ship) splashed one kamikaze just 50 yards short of the ship while off of Okinawa.

I am fortunate enough to have learned here enough to minimize as much as possible the impact to the 'last one standing', but my projection still is the actual tax bill will double in $ for the survivor. But from another view, that's a good thing, as it means we have adequate retirement income.
lstone19
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by lstone19 »

JackoC wrote: Tue May 03, 2022 10:42 am
lstone19 wrote: Sun May 01, 2022 9:04 pm Yes indeed. But I’ve seen a recurring theme here with some posters who are so opposed to paying taxes (and related like IRMAA) that they’d rather pay even more to avoid them. I’ve seen suggestions such as disclaim an inherited IRA or make QCDs* both of which are effectively 100% taxes in order to avoid paying taxes to the government.

* while we all arguably should be making charitable donations, some of these suggestions to make QCDs seem to be made strictly for the purpose of avoiding paying taxes.
Maybe there have been posts by somebody saying they find no value in giving to charity and would only do it to reduce MAGI. Which still technically could work, if you could closely enough predict MAGI to make a QCD that put you under an IRMAA threshold whose after tax cost was smaller than the extra IRMAA charge of going over that threshold. Practically that's unlikely of course, income is usually too hard to predict to that level of accuracy. But the vast majority of references here to how QCD's affect MAGI, to my recollection, have been in context of making a QCD *instead* of a contribution of cash or appreciated taxable assets, or that the perceived value of giving to charity isn't enough to justify it with the normal tax advantage, but is enough once you add in the advantage of dodging an IRMAA level.
I deliberately tried to leave out the issue of should we be making charitable contributions with my asterisked comment.

I agree that there are some edge cases where a small QCD could result in a large IRMAA savings. I helped my son once with a similar situation. When he was our dependent, and due to a cliff in Illinois state income tax, he went one dollar over the cliff from $0 income tax to over $100 income tax (due to once a dependent exceeded the personal exemption, they lost it all). Fortunately, there was an option. He opened an IRA (he had some earned income) for $5 and pulled back $4 short of the cliff.

However, back to my statement, I recall one topic, which I cannot find, where someone complained that they would be paying 40% or so income tax (federal/state combined) on an inherited IRA they were to receive and someone suggested, apparently with a straight face, that the complainer disclaim the inherited IRA turning what would be a real tax of 40% into an effective "tax" of 100% (but at least the complainer wouldn't be sending any money to the government).
Tib
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by Tib »

mnnice: "I guess I don’t see why a retired married couple would require an income that high. Enjoy sure. Successful accumulate fine. Need $183,000 seems like a pretty fantastic life can be built in this country for way less."

More so in some parts of the country than others.
JackoC
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by JackoC »

lstone19 wrote: Tue May 03, 2022 2:25 pm
JackoC wrote: Tue May 03, 2022 10:42 am
lstone19 wrote: Sun May 01, 2022 9:04 pm Yes indeed. But I’ve seen a recurring theme here with some posters who are so opposed to paying taxes (and related like IRMAA) that they’d rather pay even more to avoid them. I’ve seen suggestions such as disclaim an inherited IRA or make QCDs* both of which are effectively 100% taxes in order to avoid paying taxes to the government.

* while we all arguably should be making charitable donations, some of these suggestions to make QCDs seem to be made strictly for the purpose of avoiding paying taxes.
Maybe there have been posts by somebody saying they find no value in giving to charity and would only do it to reduce MAGI. Which still technically could work, if you could closely enough predict MAGI to make a QCD that put you under an IRMAA threshold whose after tax cost was smaller than the extra IRMAA charge of going over that threshold. Practically that's unlikely of course, income is usually too hard to predict to that level of accuracy. But the vast majority of references here to how QCD's affect MAGI, to my recollection, have been in context of making a QCD *instead* of a contribution of cash or appreciated taxable assets, or that the perceived value of giving to charity isn't enough to justify it with the normal tax advantage, but is enough once you add in the advantage of dodging an IRMAA level.
1. I deliberately tried to leave out the issue of should we be making charitable contributions with my asterisked comment.

2. I agree that there are some edge cases where a small QCD could result in a large IRMAA savings. I helped my son once with a similar situation. When he was our dependent, and due to a cliff in Illinois state income tax, he went one dollar over the cliff from $0 income tax to over $100 income tax (due to once a dependent exceeded the personal exemption, they lost it all). Fortunately, there was an option. He opened an IRA (he had some earned income) for $5 and pulled back $4 short of the cliff.

3. However, back to my statement, I recall one topic, which I cannot find, where someone complained that they would be paying 40% or so income tax (federal/state combined) on an inherited IRA they were to receive and someone suggested, apparently with a straight face, that the complainer disclaim the inherited IRA turning what would be a real tax of 40% into an effective "tax" of 100% (but at least the complainer wouldn't be sending any money to the government).
1. But what it leaves out, seems to me, is that people put different non-zero values of benefit to the giver of charitable contribution. And we must think it benefits us, on some level (the 'benefit to giver' can be a genuinely high minded one) or we wouldn't. A person might see some benefit to giving $1000 to charity that actually costs them $1000, but not enough to actually do it. However introduce a tax advantage where the $1000 to charity only costs them $700 and they will give. If this were a crazy idea, charitable org world wouldn't care if there was a charitable deduction, but they very obviously do. Just reading 'other person on the internet' I think it would be easy to lose that subtlety and assume the person perceives no benefit in giving, and if they said they'd give $10k QCD (say $7k after tax effect) to also avoid a $3k IRMAA bump for self and spouse, they must be irrational. Not necessarily. It would also fit with them viewing the benefit of a $10k donation (to the giver) as less than $7k but more than $4k.

2. And right the net cost of the donation could go below zero with IRMAA because 'cliff', though practically it's difficult to fine tune that much.

3. I think that's exceptional though and arguing about outliers isn't usually worthwhile IMO. That's definitely not the same as somebody saying they are tired of working for 50% on the dollar of the marginal deal, bonus $ etc but would have more appetite for it if they got to keep 75% at the margin, and if having too much cumulatively didn't put in them in line to have another 40% taken from their heirs. It's a fine line I know to avoid getting into public policy debate about this. I'm trying to limit it to just saying somebody retiring quite early because they face high tax rates is not necessarily 'the tax tail wagging the financial life dog'. The total taxation, income, investment return, then possible estate, is definitely a rational input into that decision. And that was among the original examples you seemed to agree with, 20 yrs less work because it meant less tax was irrational. Not necessarily at all. OTOH if there's really somebody saying they'd rather give up 60% of a pure windfall because the govt is getting 40% I agree that's not rational.
Parkinglotracer
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by Parkinglotracer »

Seems like the market is doing a fine job itself to keep investors income down this year. Lol.
Topic Author
water2357
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by water2357 »

Interesting that at least some seem to think that 91,000 single or 182,000 married will provide extravagant lifestyles in the US. It appears that some totally discount the very real possibility of having to finance medical issues or significant long term care issues in retirement.

The complexities of dealing with the reality of a single person or a couple where both must pay for long term care is daunting at best. And as mentioned previously unless there are millions in assets at the time care is needed, will certainly ultimately lead to bankruptcy. And the process of financing medical expenses and particularly long term care, leads to retirement plan withdrawals and sales of assets that all trigger every one of the taxes that are supposed to only hit the truly wealthy.

True they only hit those who are not multi-millionaires for several years at which time all the assets are gone and the person must depend on Medicaid. But it truly is in the person's best interest to be able to stay off of Medicaid as long as possible in order to be able to stay in facilities that provide better care. And to do that one would need to minimize the taxes triggered by MAGI regardless of taxable income after deductions, which would most likely be zero.

I guess either many have not witnessed the need for a decade of long term care or a couple both in long term care or believe that it won't happen to them or that Medicaid will be sufficient. But the reality is that some people will require this care and their 91,000 or 182,000 will be spent every year plus additional assets will be sold/withdrawn and taxed. A couple would need at least 250,000 per year, probably more like 300,000. A million will be gone in no time. It's only if long term care expenses are totally ignored as a possibility or one is fine with thinking they can totally rely on Medicaid, that even 182,000 for a couple could be considered to provide a life of extravagance.

It's true that tax on these retirement savings/investments would have to be paid sometime, but while the person needs care, it would be in their interest to not have to pay "extra" MAGI triggered taxes, just because they are paying for their care. But as mentioned previously it seems the best way to deal with this possibility is to have had the time and ability/eligibility to have most savings/investments in a Roth IRA at least 2 years before age 65.

If one did not have that opportunity, there does not appear to be anything as significant that one can do after age 63. So, at that point, it appears to be more an issue of working around the edges and being aware and budgeting for these MAGI triggered taxes as much as possible. So, various suggestions have been helpful, but it looks like after age 63, the tax planning just gets harder.
HootingSloth
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by HootingSloth »

water2357 wrote: Wed May 04, 2022 6:24 am Interesting that at least some seem to think that 91,000 single or 182,000 married will provide extravagant lifestyles in the US. It appears that some totally discount the very real possibility of having to finance medical issues or significant long term care issues in retirement.

The complexities of dealing with the reality of a single person or a couple where both must pay for long term care is daunting at best. And as mentioned previously unless there are millions in assets at the time care is needed, will certainly ultimately lead to bankruptcy. And the process of financing medical expenses and particularly long term care, leads to retirement plan withdrawals and sales of assets that all trigger every one of the taxes that are supposed to only hit the truly wealthy.

True they only hit those who are not multi-millionaires for several years at which time all the assets are gone and the person must depend on Medicaid. But it truly is in the person's best interest to be able to stay off of Medicaid as long as possible in order to be able to stay in facilities that provide better care. And to do that one would need to minimize the taxes triggered by MAGI regardless of taxable income after deductions, which would most likely be zero.

I guess either many have not witnessed the need for a decade of long term care or a couple both in long term care or believe that it won't happen to them or that Medicaid will be sufficient. But the reality is that some people will require this care and their 91,000 or 182,000 will be spent every year plus additional assets will be sold/withdrawn and taxed. A couple would need at least 250,000 per year, probably more like 300,000. A million will be gone in no time. It's only if long term care expenses are totally ignored as a possibility or one is fine with thinking they can totally rely on Medicaid, that even 182,000 for a couple could be considered to provide a life of extravagance.

It's true that tax on these retirement savings/investments would have to be paid sometime, but while the person needs care, it would be in their interest to not have to pay "extra" MAGI triggered taxes, just because they are paying for their care. But as mentioned previously it seems the best way to deal with this possibility is to have had the time and ability/eligibility to have most savings/investments in a Roth IRA at least 2 years before age 65.

If one did not have that opportunity, there does not appear to be anything as significant that one can do after age 63. So, at that point, it appears to be more an issue of working around the edges and being aware and budgeting for these MAGI triggered taxes as much as possible. So, various suggestions have been helpful, but it looks like after age 63, the tax planning just gets harder.
I think everyone recognizes that the cost of long term care can be extraordinarily high. The disconnect seems to be in seeing how $800/year in tier one IRMAA is going to make a significant difference in how this kind of scenario plays out.
Global Market Portfolio + modest tilt towards volatility (80/20->60/40 as approach FI) + modest tilt away from exchange rate risk (80% global+20% U.S. stocks; currency-hedge bonds) + tax optimization
sc9182
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by sc9182 »

HootingSloth wrote: Wed May 04, 2022 6:58 am
water2357 wrote: Wed May 04, 2022 6:24 am Interesting that at least some seem to think that 91,000 single or 182,000 married will provide extravagant lifestyles in the US. It appears that some totally discount the very real possibility of having to finance medical issues or significant long term care issues in retirement.

The complexities of dealing with the reality of a single person or a couple where both must pay for long term care is daunting at best. And as mentioned previously unless there are millions in assets at the time care is needed, will certainly ultimately lead to bankruptcy. And the process of financing medical expenses and particularly long term care, leads to retirement plan withdrawals and sales of assets that all trigger every one of the taxes that are supposed to only hit the truly wealthy.

True they only hit those who are not multi-millionaires for several years at which time all the assets are gone and the person must depend on Medicaid. But it truly is in the person's best interest to be able to stay off of Medicaid as long as possible in order to be able to stay in facilities that provide better care. And to do that one would need to minimize the taxes triggered by MAGI regardless of taxable income after deductions, which would most likely be zero.

I guess either many have not witnessed the need for a decade of long term care or a couple both in long term care or believe that it won't happen to them or that Medicaid will be sufficient. But the reality is that some people will require this care and their 91,000 or 182,000 will be spent every year plus additional assets will be sold/withdrawn and taxed. A couple would need at least 250,000 per year, probably more like 300,000. A million will be gone in no time. It's only if long term care expenses are totally ignored as a possibility or one is fine with thinking they can totally rely on Medicaid, that even 182,000 for a couple could be considered to provide a life of extravagance.

It's true that tax on these retirement savings/investments would have to be paid sometime, but while the person needs care, it would be in their interest to not have to pay "extra" MAGI triggered taxes, just because they are paying for their care. But as mentioned previously it seems the best way to deal with this possibility is to have had the time and ability/eligibility to have most savings/investments in a Roth IRA at least 2 years before age 65.

If one did not have that opportunity, there does not appear to be anything as significant that one can do after age 63. So, at that point, it appears to be more an issue of working around the edges and being aware and budgeting for these MAGI triggered taxes as much as possible. So, various suggestions have been helpful, but it looks like after age 63, the tax planning just gets harder.
I think everyone recognizes that the cost of long term care can be extraordinarily high. The disconnect seems to be in seeing how $800/year in tier one IRMAA is going to make a significant difference in how this kind of scenario plays out.
good point. the way long term care costs are portrayed, it sounds like OP will blow past IRMAA tiers 1 and 2 —- possibly hitting tier 3 ranges.

yes, helps to have good understanding of Cliffs, but if annual income needs are much beyond 200k range., not a whole lot can be done if accounts are not tax diversified already (Trad, SS, pensions, Roth, HSA, using Brokerage monies with tax-loss/minimal-gains and/or low-cost margin loans, or HELOX etc).

if someone got idears - please share (sorry - going/convert all-in on Roth doesn’t cut the cheese in many-a-cases)
twh
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by twh »

I used to pay a lot of attention to IRMMA. Unless it is going to be a low spend year, I just don't worry about it. It isn't worth all the machinations. And, Medicare will revert you to no-IRMMA if and when you have a lower tax year.
eddot98
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by eddot98 »

lws wrote: Fri Apr 22, 2022 4:00 pm My employee retirement medical benefits cover Part B IRMAA.
They require that I sign up for Part B.
Drug coverage, Part D IRMAA, is my responsibility.
We have the same benefit, but we have never tested it as the application process to be reimbursed for IRMAA payments seems a little complicated. As has been pointed out several times in this thread, in our case the surviving spouse will be thrown into IRMAA level 3 and I do know that the reimbursement will still apply to me (the former employee), but I am not completely sure that DW will get the same reimbursement once she starts to pay for single coverage in our health insurance plan.
A few years ago when I got an unexpected 1099 consulting gig, the proceeds put us too close to IRMAA level 1. I opened and funded a SEP IRA to get us safely below the income level. I was collecting a pension, SS for both of us, and I had a part time W2 job at the time.
As it has also been pointed out, if a long term care facility is needed that will usually bankrupt all but the most wealthy. If one of us had to go it’s possible that the other could survive while paying for long term care for the other, but, not only would it be a severe emotional crisis, but it would also have a serious negative impact on their lifestyle.
We experienced this bankrupting first hand when both DW’s parents had to be admitted to a nursing home. They didn’t have much, but they lost it all, including their house (due to a lack of planning and a stubborn old school attitude).
delamer
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by delamer »

eddot98 wrote: Tue Jun 21, 2022 9:57 am
lws wrote: Fri Apr 22, 2022 4:00 pm My employee retirement medical benefits cover Part B IRMAA.
They require that I sign up for Part B.
Drug coverage, Part D IRMAA, is my responsibility.
We have the same benefit, but we have never tested it as the application process to be reimbursed for IRMAA payments seems a little complicated. As has been pointed out several times in this thread, in our case the surviving spouse will be thrown into IRMAA level 3 and I do know that the reimbursement will still apply to me (the former employee), but I am not completely sure that DW will get the same reimbursement once she starts to pay for single coverage in our health insurance plan.
A few years ago when I got an unexpected 1099 consulting gig, the proceeds put us too close to IRMAA level 1. I opened and funded a SEP IRA to get us safely below the income level. I was collecting a pension, SS for both of us, and I had a part time W2 job at the time.
As it has also been pointed out, if a long term care facility is needed that will usually bankrupt all but the most wealthy. If one of us had to go it’s possible that the other could survive while paying for long term care for the other, but, not only would it be a severe emotional crisis, but it would also have a serious negative impact on their lifestyle.
We experienced this bankrupting first hand when both DW’s parents had to be admitted to a nursing home. They didn’t have much, but they lost it all, including their house (due to a lack of planning and a stubborn old school attitude).
That’s a shame about your wife’s parents.

However, it’s an exaggeration to say that LTC usually bankrupts all but the most wealthy. Most people aren’t in LTC for more than a couple of years. A lot of people/couples can cover that expense and still leave at least a small estate.

I do agree that that hardest scenario financial is if one spouse needs LTC while the other still is living independently.

We have LTC insurance that will cover each of us for 3 years. We hope that will greatly lessen the chance of putting the independent spouse in financial jeopardy.

What we really hope, though, is that the insurance goes unused.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
jharkin
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by jharkin »

water2357 wrote: Wed Apr 20, 2022 12:40 am What is the method you rely on to keep your retirement income below IRMAA, NIIT, AMT and any other additional taxation that you perhaps did not need to worry about before retirement age?
Simple - retire long before I save up so much money that RMDs would trigger these taxes, and do roth conversions pre-medicare age.

I don't live a 250k+ expense lifestyle so no need to save up 10s of millions before I retire.
eddot98
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by eddot98 »

delamer wrote:
“However, it’s an exaggeration to say that LTC usually bankrupts all but the most wealthy. Most people aren’t in LTC for more than a couple of years. A lot of people/couples can cover that expense and still leave at least a small estate.”

Possibly you are correct that I exaggerated, but here’s our experience: DW’s parents had to go in a nursing home at the same time due to an accident in early November of 2016. They were 88 and 89 years old at the time and living in their home with a little help from family and Elder Services. FIL was in great physical condition even though he was a lifelong smoker. The accident and several surgeries in 3 months sent him into full on dementia. He died in a few days from Covid-19 in March of 2020. MIL was also in good condition physically but not mentally and survived Covid-19 but died of complications in July of 2021. FIL stayed 3 years and 6 months in nursing home at $10,000 a month equaling $420,000. MIL stayed 4 years and 9 months at $10,000 a month equaling $570,000. Total cost just for nursing home without Medicaid would have been $990,000. Once in a nursing home you find out that things like prescriptions, haircuts, clothing, shavers, etc. are not included. Medicaid allows a small stipend for those items. That’s at least $1,000,000 after tax dollars.
The average nursing home stay is 3 years. That’s still $360,000 for one person plus other assorted costs. While that wouldn’t bankrupt us, we are more fortunate than most.
delamer
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by delamer »

eddot98 wrote: Wed Jun 22, 2022 3:31 pm delamer wrote:
“However, it’s an exaggeration to say that LTC usually bankrupts all but the most wealthy. Most people aren’t in LTC for more than a couple of years. A lot of people/couples can cover that expense and still leave at least a small estate.”

Possibly you are correct that I exaggerated, but here’s our experience: DW’s parents had to go in a nursing home at the same time due to an accident in early November of 2016. They were 88 and 89 years old at the time and living in their home with a little help from family and Elder Services. FIL was in great physical condition even though he was a lifelong smoker. The accident and several surgeries in 3 months sent him into full on dementia. He died in a few days from Covid-19 in March of 2020. MIL was also in good condition physically but not mentally and survived Covid-19 but died of complications in July of 2021. FIL stayed 3 years and 6 months in nursing home at $10,000 a month equaling $420,000. MIL stayed 4 years and 9 months at $10,000 a month equaling $570,000. Total cost just for nursing home without Medicaid would have been $990,000. Once in a nursing home you find out that things like prescriptions, haircuts, clothing, shavers, etc. are not included. Medicaid allows a small stipend for those items. That’s at least $1,000,000 after tax dollars.
The average nursing home stay is 3 years. That’s still $360,000 for one person plus other assorted costs. While that wouldn’t bankrupt us, we are more fortunate than most.
It is a shame that you family went through that heartache and expense.

But your experience is almost certainly not typical, with both spouses needing multiple years of care. Plus it sounds like Medicaid picked up a big chunk of the cost.

The bottom-line issue is that people should pay for their own care, when possible. And if that means that there is no estate to pass along, so be it. In the end, there is a system in place to help those who have spent down their assets and to not bankrupt an independent spouse if the other one needs care.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
BernardShakey
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by BernardShakey »

Soon2BXProgrammer wrote: Fri Apr 22, 2022 1:47 pm
water2357 wrote: Wed Apr 20, 2022 12:40 am What is the method you rely on to keep your retirement income below IRMAA, NIIT, AMT and any other additional taxation that you perhaps did not need to worry about before retirement age?
Megabackdoor Roth to stuff my Roth IRA and keep my taxable account small.
+1. An under appreciated strategy among much of the general public but not by the Bogleheads!
An important key to investing is having a well-calibrated sense of your future regret.
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water2357
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by water2357 »

But your experience is almost certainly not typical, with both spouses needing multiple years of care. Plus it sounds like Medicaid picked up a big chunk of the cost.

The bottom-line issue is that people should pay for their own care, when possible. And if that means that there is no estate to pass along, so be it. In the end, there is a system in place to help those who have spent down their assets and to not bankrupt an independent spouse if the other one needs care.
Then perhaps you haven't dealt with/experienced the sad state of caring for the elderly in the US. It does not take long to incur hundreds of thousands of dollars in expenses, unless you are just letting the elderly patient waste away without care in their home or you are providing their care 24/7 free of charge, i.e. you are quitting your job, sacrificing your retirement and bankrupting yourself.

And perhaps you haven't visited facilities that will accept Medicaid patients with no assets. People crammed in the halls needing their clothing changed. No one responding to calls. The smell can be awful. There are never enough aides. Food service is abysmal. There are falls, bed sores, undiagnosed UTIs, forgotten physical therapy, and on and on.

It's easy to say that this situation isn't typical, sadly it is. If you visit long term care facilities, you will find that most residents don't even receive visits from their family. They are sent to the hospital and back with no one to accompany them and this happens in the best facilities. They are scared and don't understand what it happening. Week after week, month after month and year after year, you only see the same few visitors on a regular basis. And in home care is fraught with its own problems, care agencies that are not bonded, care providers that are negligent, care providers that abuse and take advantage of the elderly.

Long Term Care takes a lot of planning/work and a lot of money to provide a decent existence. Of course without decent care people will indeed pass away more quickly, but probably not without unneeded suffering and still with a lot of expense.
delamer
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by delamer »

water2357 wrote: Thu Jun 23, 2022 1:58 am
But your experience is almost certainly not typical, with both spouses needing multiple years of care. Plus it sounds like Medicaid picked up a big chunk of the cost.

The bottom-line issue is that people should pay for their own care, when possible. And if that means that there is no estate to pass along, so be it. In the end, there is a system in place to help those who have spent down their assets and to not bankrupt an independent spouse if the other one needs care.
Then perhaps you haven't dealt with/experienced the sad state of caring for the elderly in the US. It does not take long to incur hundreds of thousands of dollars in expenses, unless you are just letting the elderly patient waste away without care in their home or you are providing their care 24/7 free of charge, i.e. you are quitting your job, sacrificing your retirement and bankrupting yourself.

And perhaps you haven't visited facilities that will accept Medicaid patients with no assets. People crammed in the halls needing their clothing changed. No one responding to calls. The smell can be awful. There are never enough aides. Food service is abysmal. There are falls, bed sores, undiagnosed UTIs, forgotten physical therapy, and on and on.

It's easy to say that this situation isn't typical, sadly it is. If you visit long term care facilities, you will find that most residents don't even receive visits from their family. They are sent to the hospital and back with no one to accompany them and this happens in the best facilities. They are scared and don't understand what it happening. Week after week, month after month and year after year, you only see the same few visitors on a regular basis. And in home care is fraught with its own problems, care agencies that are not bonded, care providers that are negligent, care providers that abuse and take advantage of the elderly.

Long Term Care takes a lot of planning/work and a lot of money to provide a decent existence. Of course without decent care people will indeed pass away more quickly, but probably not without unneeded suffering and still with a lot of expense.
I’m not clear on the point of the above lecture. I’ve never argued that all elders are well cared for, that they all die with dignity, or that their families aren’t sometimes stretched to the limit to get them good care.

But what does it that have to do with the topic at hand — which is elders being bankrupted in order to pay for their own care? I don’t doubt that some elders are bankrupted, but I haven’t seen any proof that this is typical. And even if it is, should there be an entitlement to pass along an estate to their heirs or should people have to pay for their own care until they lack the resources to do so (and the taxpayer steps in)?

And, BTW, my parents both needed LTC at the end of their lives, one due to cancer and one due to dementia. Fortunately, that care did not bankrupt them. They worked hard, planned well, and had some good luck. But their peak working income was just $45,000/year, and they were certainly not multimillionaires.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Circe
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by Circe »

On average, a person with Alzheimer's lives four to eight years after diagnosis, but can live as long as 20 years, depending on other factors. Changes in the brain related to Alzheimer's begin years before any signs of the disease. www.alz.org

Having just gone through it with a relative who spent over $800k for 8 years of care, I wanted to point this out.

Otherwise, the IRMAA is a great topic and something I need to learn more about.
Walkure
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Re: How are you investing to keep your retirement income below IRMAA, NIIT, AMT, etc.?

Post by Walkure »

Am I correct in my understanding that the QCD limit is not indexed for inflation? I was looking over my spreadsheet (which projects everything out in "today's dollars") and came to the unpleasant realization that RMDs might be much, much bigger than $100,000 per person in nominal terms.
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