Podcast Summary: Roth Conversions and IRMAA Jill on Money with Jill Schlesinger Release Date: December 6, 2024

Introduction

In this episode of Jill on Money with Jill Schlesinger, host Jill Schlesinger, CFP®, delves into the intricate topics of Roth conversions and Income-Related Monthly Adjustment Amounts (IRMAA). With the holiday season upon us, Jill addresses listener questions, providing clear and actionable financial advice without the usual jargon. Co-host Mark Talaricio joins her to offer additional insights, making complex financial strategies accessible to all listeners.

Understanding Roth Conversions and IRMAA

Roth Conversions: A Roth conversion involves transferring funds from a traditional retirement account (like a 401(k) or IRA) to a Roth IRA. While this move can lead to tax-free withdrawals in retirement, it also triggers taxable income in the year of conversion.

IRMAA: IRMAA affects Medicare beneficiaries with higher incomes by increasing their Medicare Part B and Part D premiums. It's crucial to manage income levels to avoid these additional costs.

Listener Questions and Discussions

1. Patty's Pension and Roth IRA Eligibility

Timestamp: [05:10]

Patty's Situation:

• Husband's pension from law enforcement: $80,000 (taxed)
• Patty's income: $200,000 (W-2)
• Inquiry: Does their combined income exceed the Roth IRA contribution limits?

Jill's Response:

• "The range for 2024 is $230,000 to $240,000 for married filing jointly to be eligible for a contributory Roth IRA." ([06:25])
• Given their combined income of $280,000, they exceed the Roth IRA eligibility threshold.
• Alternatives: Utilize employer Roth options or invest in taxable accounts due to their substantial income.

2. Mary's Roth Conversion and IRMAA Concerns

Timestamp: [10:45]

Mary's Situation:

• Single, doing annual Roth conversions from her 457 account.
• Maintains income within the second tier of IRMAA ($103,000 to $129,000).
• Faces an extra $83/month in Medicare premiums.
• Question: Should she convert more funds and accept higher IRMAA charges?

Mark's Insight:

• "You may be forced to take money out of these accounts at uncertain tax rates and IRMAA costs in the future." ([12:15])
• Recommends converting more despite increased IRMAA to lock in current tax liabilities.
• Emphasizes the importance of managing required minimum distributions (RMDs) proactively.

3. Dave's Retirement Planning and Commercial Real Estate

Timestamp: [14:30]

Dave's Situation:

• Gross income: $185,000 - $205,000
• Wife's income: $8,000/month
• Assets: $1.7M in stocks, 3 bitcoins, $200,000 in money market
• Mortgage: $200,000 remaining on a 3% rate
• Plans to retire once stocks hit $2.5M or in three years
• Owns commercial real estate valued at $5M, producing $14,000/month
• Concerns about financial security and retirement readiness

Jill and Mark's Discussion:

• Jill questions the sufficiency of current assets without considering the commercial real estate's stability.
• "If the commercial real estate has a long-term lease, that adds significant security." ([15:50])
• Mark advises caution, highlighting the heavy reliance on stock market performance.
• Suggests delaying retirement to bolster savings and gain more certainty about income streams.

4. Eric's Strategy to Avoid Future Tax Burdens

Timestamp: [18:20]

Eric's Situation:

• Ages: 53 and 52, married
• Income: < $100,000/year from various sources
• Assets: $1.2M pre-tax retirement, $1.4M Roth, $60,000 HSA, $175K brokerage (including $50K cash), home worth $375,000 with $14K mortgage left, commercial real estate valued at $250,000
• Concerns: Looming tax liabilities in 20 years, receiving premium tax credits

Jill's Advice:

• "Do not proceed with Roth conversions now as it may jeopardize your premium tax credits." ([19:45])
• Emphasizes the importance of maintaining liquidity and safeguarding access to brokerage accounts.
• Recommends postponing Roth conversions until retirement phase to minimize impact on tax credits and Medicare premiums.

Key Insights and Takeaways

1. Balancing Roth Conversions with IRMAA: While converting to a Roth IRA can provide tax-free income in retirement, it's essential to consider the impact on IRMAA and future Medicare costs. Strategic planning is necessary to optimize both benefits and minimize additional expenses.

2. Evaluating Income Thresholds: Understanding the income thresholds for Roth IRA contributions and IRMAA is crucial. Couples with high combined incomes may need to explore alternative investment strategies to maximize retirement savings without triggering higher Medicare premiums.

3. Retirement Readiness and Asset Diversification: Relying heavily on stock market investments can be risky. Diversifying assets, including secure commercial real estate with stable income streams, can enhance financial security and provide more predictable retirement income.

4. Tax Credits and Future Planning: For those receiving premium tax credits, maintaining lower taxable income levels is vital to retain these benefits. This may influence decisions on Roth conversions and the timing of taking distributions from retirement accounts.

5. Proactive Financial Management: Addressing financial concerns proactively, such as managing RMDs and strategizing Roth conversions, can lead to more stable and secure retirement outcomes.

Conclusion

In this episode, Jill Schlesinger and co-host Mark Talaricio provide comprehensive guidance on navigating Roth conversions amidst the complexities of IRMAA. By addressing real-life listener questions, they offer practical strategies to optimize retirement savings while managing potential tax implications. Listeners are encouraged to assess their unique financial situations, consider professional advice, and make informed decisions to secure their financial futures.

Notable Quotes:

• "Everyone who joins right now is going to get Grandfathered in at $35 for next year." – Mark Talaricio [02:30]

• "You have to decide which is the less invasive event in my life over time." – Jill Schlesinger [15:05]

• "I really think people are so apoplectic about some of the small dollars and we are really focusing on the wrong thing sometimes." – Jill Schlesinger [13:40]

Resources Mentioned:

• Jill on Money Live: Subscribers can access quarterly webinars and the episode back catalog.
• Contact Information: Listeners can email questions to jillonmoney@gmail.com via the website jillonmoney.com.

For more insightful discussions on personal finance and investment strategies, subscribe to Jill on Money with Jill Schlesinger on your preferred podcast platform.