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Ed Slott was named "The Best" source for IRA advice by The Wall Street Journal and called "America's IRA Expert" by Mutual Funds Magazine. He is a widely recognized professional speaker and educator specializing in retirement distribution planning, teaching both financial advisors and consumers how to best take advantage of our complicated tax code.
-- Have something you want to ask Ed? Send your questions to mailbag@irahelp.com
This week, he returns to answer questions from investors on topics ranging from Medicare premiums and replacing IRA withdrawals to required minimum distributions.
Question 1:
My husband converted his IRA to a Roth IRA in 2010. We just received a notice from Social Security that our deductions for Medicare Part B and for our prescription drug coverage are being increased for both of us because the premiums are based on our modified adjusted gross income (MAGI) including the amount that was rolled over into the Roth IRA. Is there any way to avoid paying this increased amount?
It seems like this is a double tax since when we start receiving distributions they will again be included in our MAGI.
Thank you for your assistance.
Sincerely,
Martha P. Willis
Answer:
Your Medicare premiums are based on your MAGI. Unfortunately, this is increased when you do a Roth conversion and there is no offset for the conversion. However, the increase is temporary and should be reduced after the Roth IRA conversion amount is no longer included in your MAGI.
Distributions from your Roth IRA, if you elect to take any, will be tax and penalty free, unless you dip into the earnings within the first five years. They will not impact your MAGI in future years and should not increase future Medicare premiums. If you had left the funds in your IRA and had to take required distributions each year, your Medicare premiums could have been increased each year because of the RMDs. This way, you have a one-time hit to your premiums.
Question 2:
I haven't been able to get an answers to these questions. Can you answer them please?
My husband is 71 and owns his own company. We maximize funding his 401(k) yearly. We know that he must take a required minimum distribution (RMD) by December 31, 2011.
1) He plans to continue working for many years and wants to know if he can still maximize his contribution to his 401(k) even though he's taking an RMD?
2) I am 11 years younger than my husband. We were told that we can use a Joint Life Table to reduce our RMD since I'm more than 10 years younger. Is this true?
Thank you very much,
Wendy Lewis
Answer:
An individual who is a 5% or greater owner will have to start RMDs from an employer plan at age 70 1/2. He could still continue to contribute to the plan so long as he continues to work and the plan allows him to make contributions.
For his RMDs, he can use the Joint Life Expectancy Table rather than the Uniform Lifetime Table since you are more than 10 years younger. This will enable him to take out slightly less on an annual basis.
Question 3:
I am 78 years old and have a conventional IRA. I have made three withdrawals (loans) totaling $25,000 in the last 60 days plus another prior to that.
I would like to replace the $25,000 but was told I could only replace a single withdrawal if it were in the last 60 days. Some folks tell me I can replace all three and others have told me I could only replace one. I then called the IRS and was told I could replace the three individual withdrawals as long as it was within the 60 day period.
What is correct?
Thank you,
Boyd Creech
Answer:
The answer to your question depends on whether you have one IRA or multiple IRAs. The rule is that you can do only one 60-day rollover per account, per year. It sounds like you have only one IRA. In that case, the correct answer is you can only put back one of the withdrawals, within 60 days of the receipt of the funds. You can choose which distribution you want to roll over, as long as you meet the 60-day requirement.
It is generally not a good idea to take a “loan” from an IRA.
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