Misread…
Well…woohoo. I am subject to the offset and windfall provisions of SS…so my benefit is reduced and my husband isn’t entitled to a dime based on my earnings (e.g. spousal benefits…$0 for him). But the good news is today I got my 3.4% increase…plus my IRMMA is now no longer there! Woohoo.
My net deposit starting this month is $157! I know that doesn’t seem like much but since I retired, that is an all time high…because my benefit was lower, and my husband was working at a high paying job…so IRMMA was high enough that there were years that my SS didn’t even cover my Medicare bill.
2 Likes
you are rich! Go buy a lotto ticket. hahahaha
I might!
I know plenty of people like Roth IRAs but the reality is the time for Roth is when you are in your 20s and early 30s when your income is lower. As you age and if your income continues to grow to me it is better to avoid paying tax now and deal with it later. Medicare plays a roll in all this for sure, but if I were in your shoes I would contribute to the traditional 401K and save the taxes this year.
You can pay the taxes now or let your heirs pay it in the future. You might live 20 more years and then they have 10 more years to close out the IRA. That is 30 years of growth.
2 Likes
Another idea is to gift money to the kids, have them open (or add to) their own Roth 401K.
4 Likes
Another little tax efficient device is to gift appreciated securities, especially to a child who makes less than the threshold to be assessed capital gains (roughly $45k). You avoid capital gains and your child can sell the shares with 0 cap gains tax and reinvest it in a more diverse instrument(s) at a higher basis. But Roth is the first place gifts for children should go unless they have immediate needs.
4 Likes
is that not subject to the Kiddie Tax?
That was years ago, IRS has wised up and now we have the kiddie tax.
For a child with no earned income, the amount of unearned income up to $1,250 is not taxed in 2023. The next $1,250 is taxed at the child’s rate. Any amount above $2,500 is taxed at the parents’ rate.
1 Like
Not talking about a Kiddie tax situation. We have one child in grad school who is independent and her own taxpayer making less than $45k but making something. It would also be beneficial for a kid that is at lower capital gains bracket than the parents, i.e. the parents are at 20% and the kid is at 15%.
1 Like
The good news is that I have a crazy amount in the 401k. The bad news is that I have a crazy amount in the 401k.
My conclusion is the same as @gpo613 – save the money pretax and let folks deal with it later. If the world turns out badly, I might need all of it. Who knows?
I also can make charitable contributions from the RMDs at some point.
I don’t think either kid can qualify for Roth’s anymore.
2 Likes
It’s not a lot, but they can make a $6500 non-deductible IRA contribution and then do a Backdoor Roth.
You may be able to offset IRA distributions against large medical costs. Not wishing that on you…
Backdoor Roth doesn’t work if you have other pretax IRA assets.
2 Likes
My suggestion of the Backdoor Roth was for his children who now earn too much to contribute directly to a Roth. I am assuming (but probably should never assume!) that the children wouldn’t have any other pretax IRA assets.
Some employer plans have the Roth option.
1 Like
If you and your kids make too much to contribute to a Roth, if you don’t have any pre-tax IRA’s (not 401Ks), then the no-brainer is a back door Roth, and mega back door Roths for all.
If you have pre-tax IRA’s, there are tax consequences, so personally I wouldn’t mess with it. Otherwise, you contribute to an after tax IRA, then do a Roth conversion soon after. $6500 max, extra $1K for 50 and over. Easy as can be.
Mega back door Roth is a little more complicated, not much, you just need to figure how much you convert. For 2023, total 401(k) contributions (pre-tax, after-tax, employer matching contributions, and any other non-elective employer contributions) are capped at $66,000, up from $61,000 for 2022. If you’re 50 or older, the limit is $73,500
In the right situation, this could add up to a pretty penny, never to be taxed. As someone who has had to withdraw from her 401K to buy property this year, I can tell you, the taxes are painful, paying at the 37% rate, and the Roths are much more valuable. Go Roth with the maximum amount you can every single year that it’s available, and all sorts of ways to get around the income restrictions. Honestly, I wish I had put less into my 401K and more into my taxable brokerage account, because in the brokerage account I would only have to pay taxes on the gains, not the entire amount.
And if your wife has any income, do the same thing for her, though if she’s below the cap, she could contribute straight out to a Roth.
1 Like
But the money that went into the regular brokerage account already had to be taxed before it went in, so it is not like it is taxed less (from the initial amount of pretax money you were paid) because only the gains were taxed when you took the money out.
5 Likes
I think I’d have preferred to pay the taxes on the income at the time, instead of having to pay it all now. Some of the time we put money in, it was at a lower tax rate then.
2 Likes
Sitting outside a New Orleans dive bar right now, waiting for a show. We took a day trip over from the Alabama coast (picking up Thing 2 from Bama for winter break on Friday).
Alabama coast has it merits. But hubby turned to me today in the French Quarter and said, forget the beach, let’s snowbird here. And I think that would be splendid. But not cheap.
4 Likes
That’s what we are doing. In addition to actually drawing on one account now.
2 Likes