I help individuals and families confidently transition from saving for retirement to living in retirement by coordinating investments, Social Security, tax-efficient withdrawal strategies, and guaranteed income into a personalized retirement income plan.
Could avoiding IRMAA cost you $250,000?
Published 9 days agoย โขย 2 min read
Happy Friday Reader โ๏ธ
A client recently came to me with a specific goal:
She wanted to optimize her retirement withdrawals to avoid extra Medicare charges and keep her taxes down.
A reasonable goal. Avoiding Medicare penalties is often a wise choice in eliminating unnecessary taxes...
But when we compared strategies, the analysis revealed something much more meaningful:
Doing larger Roth conversions (and accepting some Medicare surcharges along the way) showed an approximate tax savings of $247,017 over her lifetime.
snapshot of estimated lifetime tax savings
Thatโs nearly a quarter-million dollars that could help support her retirement lifestyle instead of going toward taxes.
Because every dollar saved in taxes, is an additional dollar you can spend!
This analysis showed tax savings, more spending power, AND $32,830 more in estimated net legacy as well.
So not only more spending for her, but more projected wealth for the people she cares about; a true win-win scenario.
This is often a bit counterintuitive. Why would paying more early in retirement help?
Because keeping taxes low today can allow a bigger tax bill to build for tomorrow.
Money left in tax-deferred accounts can continue growing. Later, required minimum distributions can force larger taxable withdrawals... whether you need that income or not.
Add Social Security, other income, and withdrawals to cover rising living costs, and you could face higher taxes and Medicare surcharges in the later years of retirement.
Sometimes alternate tax strategies, like Roth Conversions, can help reduce that future pressure and create better long-term outcomes.
You pay taxes some additional taxes now, potentially accepting higher Medicare premiums in exchange for smaller required withdrawals and greater tax flexibility later.
And as highlighted above, these benefits can often extend to your loved ones:
Remember, Inherited Roth IRA's are generally tax-free, while inherited traditional IRA are generally 100% taxable as income to your loved ones.
That can make the dollars you leave behind more valuable to the people receiving them.
That's why I always think your goal isnโt necessarily to pay the least tax this year. Itโs to support more spending power, while simultaneously creating more long-term tax efficiency for you and your loved ones (throughout your retirement plan).
Avoiding Medicare surcharges is worth considering. But sometimes accepting them temporarily can support a better long-term outcome.
Thatโs why your withdrawal strategy, Roth conversions, and Medicare costs should all be evaluated and coordinated together.
If you ever want to review that together, find some time on my calendar so we can chat.
Matt
P.S. Some details have been changed for privacy. These are projected results, not guarantees, and every retirement situation, of course, is different.
I help individuals and families confidently transition from saving for retirement to living in retirement by coordinating investments, Social Security, tax-efficient withdrawal strategies, and guaranteed income into a personalized retirement income plan.