The $18,000 Tax Surprise
How one 'harmless' IRA withdrawal cost a retiree three years of higher Medicare premiums.
How one 'harmless' IRA withdrawal cost a retiree three years of higher Medicare premiums.
The situation
Bill, 71, sold a rental property in the same year he pulled $95,000 out of his IRA to help his son with a business. Income for the year: $210,000.
What he expected
About $23,000 in extra federal tax. He was ready for that.
What actually happened
The extra income pushed him into a higher bracket, made 85% of his Social Security taxable, and — the surprise — triggered IRMAA surcharges on Medicare for the following two years. Total extra cost: about $41,000.
What he would have done
Spread the IRA withdrawal over three years. Sold the rental in a different tax year. Or done a Roth conversion in his 60s so the money was already tax-free.
Big one-year income spikes trigger stealth taxes. Spread them out, or plan around them — but never assume 'income is income.'
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