What is considered investment income? Investment Income: Interest, dividends, capital gains (long and short), annuities (not those in IRAs or company plans), royalty income, passive rental income, other passive activity income. NOT Investment Income: Wages and self-employment income, active trade/business income, distributions from IRAs, Roth IRAs and employer plans, excluded gain from the sale of a principal residence, municipal bond interest, proceeds of life insurance policies, veterans’ benefits, Social Security benefits, gains on the sale of an active interest in a partnership or S corporation.
- Identify the surtax income thresholds. The first step is to know the MAGI (modified adjusted gross income) thresholds to avoid the 3.8% surtax on net investment income. They are as follows: Married Filing Jointly ($250,000); Individuals ($200,000); Married Filing Separately ($125,000); Trusts and Estates ($14,450 for 2023). Trusts and estates are hit particularly hard with the surtax kicking in at a much lower income level.
- Look at TAXABLE income. Taxable income from all sources can push taxpayers over the MAGI threshold and cause their investment income to be subject to the 3.8% surtax. Income tax-free Roth distributions will NOT affect MAGI.
- Understand how much will be taxed. The 3.8% surtax is imposed on the lesser of (1) net investment income or (2) the amount of MAGI over the applicable income threshold. Taxpayers with income below those MAGI levels will NOT be subject to this tax.
- Know other health care tax provisions. The 3.8% surtax gets the attention, but there is also an additional 0.9% Medicare tax on wages and self-employment income over the MAGI thresholds. Also, medical expenses must exceed 7.5% of AGI to be deductible. That 7.5% also applies to the medical expense exception to the 10% penalty on early IRA or plan withdrawals.
- Discuss these tax planning points. You need to know that while IRA and plan distributions are exempt from the surtax, taxable distributions from these accounts can push income over MAGI thresholds. Roth conversions can be a valuable tool to eliminate future taxable income, especially for taxpayers with significant investment income or a discretionary trust as their IRA beneficiary. However, conversions could push you above your threshold in the short-term. Salary deferrals (401(k)s for example) can reduce MAGI for the 3.8% surtax but NOT earned income for the 0.9% additional Medicare tax.
If you’ve switched jobs in the past few years, chances are you’ve got an old 401k sitting somewhere, collecting dust and possibly fees. Today, Frank answers a listener’s question about what to do with old 401ks, when a rollover might make sense, and how to avoid common pitfalls when making the switch.
When do multiple beneficiaries exist? Multiple beneficiaries exist when an individual names more than one beneficiary for their IRA. When should you name more than one beneficiary? When you want your IRA assets to go to more than one person or entity without having to incur additional fees or paperwork by maintaining separate accounts for each beneficiary.
If I miss the 60-day deadline for completing an IRA rollover, is there any way to save the rollover amount from tax? Failing to complete a 60-day rollover on time can cause the rollover amount to be taxed as income and perhaps subject to a 10% early withdrawal penalty. However, the deadline may have been missed due to reasons that are not the taxpayer’s fault. Fortunately, for such cases, the IRS has created an easy, low-cost way to fix late rollover errors. Revenue Procedure 2016-47 enables individuals to self-certify that they are eligible for a waiver of the 60-day deadline and complete a late rollover
Plenty of people have concerns about stock market volatility, a potential recession on the horizon, and worries for the economy amidst recent news. What if you’ve had 2025 marked on the calendar for a while as the year you plan to retire? Is this a bad time to do it?
Market volatility has a way of shaking confidence. It's easy to feel uncertain, but reacting without a plan could do more harm than the drop itself. In this special mailbag episode, Frank tackles timely listener questions about navigating today’s uncertain market.
When the market is volatile, it's easy to feel like you're the only one who's ever felt this anxious. But some of the greatest investors in history have lived through chaos, and they left behind wisdom that still applies today. In this episode, Frank turns to voices like Warren Buffett, Benjamin Graham, and Jack Bogle to remind us how to stay grounded when everything feels uncertain.
When markets are shaky, it’s tempting to pull your money out and “wait for things to settle.” But what if that instinct could cost you in lost growth? In this episode, Frank shares compelling statistics on what happens when investors miss the best days in the market, and how a few wrong moves could potentially reduce your long-term returns.
What happens when you make too much money to contribute to a Roth IRA? In today’s episode, we open the mailbag to answer a listener’s question about what tax-advantaged opportunities exist when a Roth isn’t on the table.
Can children have IRAs?
How can I avoid making costly mistakes when I inherit an IRA from a person who was not my spouse?
