ok to contribute to prev-year TIRA and immediately withdraw ?

Question

In order to avoid a big hit on IRMAA (in 2023, based on 2021 AGI), wife and I plan to make TIRA contributions before filing our 2021 MFJ return, reducing our joint MAGI by $14,000 (as I understand, we do NOT have to add back in TIRA deduction when computing MAGI for IRMAA purposes).

Problem is, she?s reluctant to do so, due to short-term cash flow issues.

Is it true that if she makes a TIRA contribution now (in early 2022), that she can immediately withdraw the funds, without penalty ? (We are both in our 60s). Effectively shifting taxable income from 2021 to 2022.

P.S. In case you?re wondering how we?re flirting with IRMAA and yet intend for our TIRA contributions to be fully-deductible ? I am retired. She retired after working the first month or two of 2021. So she has enough compensation income to cover our 2 * $7000 contributions, but she elected not to participate in her employer?s retirement plan.

Stan Brown · Accepted Answer

[Proposed fiddles to avoid getting hit with an IRMAA for monthly Medicare premium]

I'm not qualified to respond to those questions, but ...

The right approach, in my opinion, is to file a form SS-44 with the Social Security Administration. The form documents how your income in this year is a one-time spike and not representative of the future, and if you make a decent case then you are excused from an IRMAA for that year. Both my brother and I did this when we retired, because each of us had a spike in income in our retirement years, and we were both successful.

John Levine · Answer

According to JGE      If she permanently stopped working, why not file an SSA-44 next yearto say that she stopped working in 2021 and get an IRMAA waiver? Thatseems a lot more straightforward.

JGE · Answer

Well, she had a big income in 2020 too, because of inheritance, and then big income in 2021 because she sold a bunch of stock to help kids buy houses. So "one time" might not fly.

Seems more straightforward to me to just get 2021 income below the threshold. Only issue is this TIRA withdrawal thing. I sure can't find anyhting that forbids it. Just the age 59-1/2 thing, and of course RMDs.

John Levine · Answer

According to JGE      The one-time event is that she stopped working in 2021, so you use the SSA-44 to tell them to use your2022 income for the 2023 IRMAA calculation rather than 2021 income.Look at the form.  It's very straightforward.

JGE · Answer

Ok, I'll keep that in my back pocket. I definitely intend to do a TIRA contribution for myself - I use it kinda like a donor-advised fund, allowing me to effectively deduct charitable contributions that I'll start making via QCD when I turn 70yo soon (since I'm nowhere near itemizing territory). My $7000 will get our MAGI down to about $194K, and the way inflation is going, I suspect that'll be enough. If I miss it, we can do the SSA-44.

Another complicating factor though is that we filed MFS in 2020, and she got NAILED by IRMAA (didn't realize the thresholds were different than for singles). So we amended to MFJ, which we had to mail in (by paper), so that's in limbo and meanwhile she's paying $500+/month for Medicare ...

ok to contribute to prev-year TIRA and immediately withdraw ?

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