Episode 58: Q&A- A Little Bit of Tax Planning, Roth Conversions, & Medicare

Here are just a handful of the things that you’ll learn:

In this week’s episode of the Fiscal Blueprint podcast, Nick Craven, CFP® and Jeff Montgomery tackle an interesting and multi-faceted listener question. They dive into a real-world tax planning example where they discuss everything from Roth Conversions to Capital Gains taxes, to Medicare surcharges. Dive into this week’s episode to learn more!


Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. So, unless you’re a client I can’t give you advice because I don’t know you. So, think of these as helpful hints and education only. And please before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser, and your financial adviser…………. right? that’s only common sense.


(0:40) Practical planning segment: Joining us today on the fiscal blueprint podcast is Nicholas Craven, CFP®, for our Q&A episode this week.


This question from the listener is interesting and it can go in a lot of different ways. It gets into a little bit of tax planning gets into a little bit of Medicare and Roth conversions as well.


Hi, I’m 71 and next year will be required to withdraw from my IRA. I’ve retired five years ago, and I filed jointly with my wife. Income is above 85,000 per year but next year’s income will spike because of my RMD’s. The RMDs alone will be about $100,000. I’m considering a Roth conversion, but I understand that that could affect my Part B and Part D Medicare premiums? Also, I have some old company stock with unrealized gain, and I might sell it. How would this affect my part B and D as a realized gain?


OK, so it looks like his main question is regarding IRMAA otherwise known as income-related monthly adjustment amount. also commonly referred to as Medicare surcharges.


so many people may not be aware that there are Medicare income brackets. And depending on your modified adjusted gross income or MAGI, you could fall into a higher bracket and pay more than the typical $148.50 per month for Medicare Part B and D.


(3:00) What is MAGI? It’s your AGI or adjusted gross income plus some additions of tax-free interest from municipal bonds


Let’s quickly review the brackets and then we’ll get back to the question from the listener.


For this example, since the listener is married, we will stick with married filing jointly and if you have $176,000 of modified adjusted gross income or less, you’re Part B premium is $148.50 for 2021. FYI for a single individual, it’s $88,000 or less.


Now, what happens if you go over that amount?


(5:30) Now, the interesting thing here is that it is a cliff. If you go $1 over 176k but less than 222k then your Part B premium will be $207.90 plus an additional $12.30 for Part D. And that is per individual. So that is an additional $860 per person per year.


The next bracket is set at 222K up to $276k. in that case, the yearly amount shoots up to an additional $2,164/yr. per person per year.


  • After that from 276k up to 330k, it’s a whopping $3,466/ per person per year


  • And then there’s a bracket from 330k up to 750k this adds $4,769 to each person per year.


  • And then one more bracket Over 750k it becomes $5,202 each per year.



(9:00) It is not permanently set at that amount. It is determined based on your tax return from two years prior two that year. So, for example, in 2021 those tax brackets I just mentioned for Medicare are for your 2019 MAGI income.

  1. You had a windfall that one year for example 2019 and then your MAGI income goes back to less than 176 K for married filing jointly in 2020, then you’re 2022 Medicare premiums would return to normal.
  2. Now, this is not the case for the listener question. Because they have an exceptionally large IRA account and those required minimum distributions will push them above the 176 K amount each year.


(11:00) There also may be some exceptions to being charged the surcharge. For example, what if you retired in 2019 later in the year and showed substantial income and you happen to be 63 years old when you retired in 2019. That is considered a life-changing event, retirement, and you would file form SSA44 and list retirement as an exception to the rule. So, when you turn 65 two years later you would not be subject to the Medicare surcharge premium.

  1. Some other exceptions are the death of a spouse, marriage, divorce, loss of income due to a natural disaster, or loss of a pension.
  2. However, a one-time boost in income due to the sale of a vacation home, for example, is not considered a life-changing event and could check trigger Medicare premium surcharges



So, if we go back to this example, their income is $85,000 per year let’s assume that’s the modified adjusted gross income. And next year with required minimum distributions alone that will add another $100,000 of income. So, if we use 2021 brackets, they would be over the 176 K amount and would be subject to the surcharge. With just that income they would each be paying $860 additional per year per person for Medicare Part B and Part D.


(13:00) Now the second part of his question was about selling company stock and realizing a gain. Unfortunately, they do not mention how much gain and how much stock they would be selling. But assuming it’s a long-term capital gain this would be added to the adjusted gross income. And remember the next bracket is not too far off beginning at 222 thousand. So, if they sell a large amount of stock with a gain of $37,000, that will put them into the next Medicare bracket and now they would be paying $2164 per person per year. That’s a big jump.


(14:30) He also discusses a Roth conversion in his question as well. He can do a Roth conversion at his age, in fact, he can even do a Roth conversion after the required minimum distribution age of 72. He would have to satisfy the RMD first and then do the conversion second in that case. But he is currently aged 71 and is considering a Roth conversion. So, he could do a conversion this year and get close to the 176 K bracket, I wouldn’t get too close, give yourself some wiggle room. Remember a conversion from a Traditional IRA to a Roth is considered income that year so it will go to the modified adjusted income calculation. He would have to be careful if he’s also selling the stock at the long-term capital gain because that too flows down to the modified adjusted income category.


So, he has a lot of moving parts that if his sole goal is to avoid the Medicare surcharge, he’s going to have to be careful this year.


(16:25) One interesting planning idea as a possibility for him is to forget about the Roth conversion idea for this year and he may be able to sell some stock this year at a 0 percent gain. Capital gains have their own tax bracket and for married filing jointly taxable income below $80,800 is that a 0% capital gains. Well right now his income is at 85 5, less a standard deduction of 25,100, assuming he does not itemize, brings his taxable income to right around 60,000. So, he may be able to recognize roughly $20,000 of long-term capital gains at 0% this year and then consider selling some of the rest of the stock next year. So essentially splitting the sale of the stock over 2 tax years. Again, this would not work if he were also trying to do a Roth conversion in the same year.


Along those same lines, maybe he wasn’t quite ready to sell the stock. He could employ a strategy of tax gain harvesting for this year. He could sell it, recognize the game, and buy it back right away. The pending on how much he sells he could fall into the zero percent tax bracket or maybe even the 15% capital gains tax bracket, but it is important to note that there is no wash sale roll when you are tax gain harvesting. The wash sale rule only applies when you are tax-loss harvesting. If you’re selling a stock at a loss and then buying that same exact stock back right away or within 30 days, that is considered a wash sale and is illegal. There is no water shell roll when you recognize a tax gain. So, in this strategy, he could sell some stock at a gain and maybe pay 0% if he stays underneath that bracket and he could buy the stock back the same day.


And then later on when he sells that stock it would have a higher cost basis and potentially less taxable gain.



Final Disclaimer:


“We appreciate you joining us today for this episode of The Fiscal Blueprint.

Be sure to visit to access the most recent content available including all past shows.

Remember it’s not about the money but about your life!

Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!

“Opinions voiced in this recording are for general information only and not intended to offer specific advice or recommendations to any individual. All performance references are historical and have no guarantee of future results. All indices are unmanaged and not available for direct investment.”

Berlin, Maryland ~ Lewes, Delaware ~ Eldersburg, Maryland

Fiduciary, Independent, Registered, Investment Advisor Representatives