Man, the Social Security laws are written to screw you if

[progree]

10. Medicare premium surcharges is one of the stealth taxes that go up as AGI goes up

Here's a good article on the Medicare premium surcharges and their history (which has bipartisan parentage).

Medicare’s Income-Related Premiums Under Current Law and Changes for 2019 (Part B and Part D Medicare Premium Surcharges), Kaiser Family Foundation, 10/31/18

https://www.kff.org/medicare/issue-brief/medicares-income-related-premiums-under-current-law-and-changes-for-2019/


The Medicare part B and part D premium surcharges are two of what are called the stealth taxes -- where your actual marginal rate is higher than what the regular income tax tables show.

Another is taxation of Social Security benefits -- as your income goes up, more of your Social Security benefit is taxed. I'm at the maximum in this regard: 85% of my Social Security benefits are added to my taxable income. And more and more people each year are getting more and more of their Social Security benefits taxed, because the IRS doesn't adjust the income thresholds for inflation.

This Social Security tax calculator determines the amount of your Social Security benefits that is taxable

. . . http://www.calcxml.com/calculators/how-much-of-my-social-security-benefit-may-be-taxed

For both these stealth taxes, the income that matters is AGI - Adjusted Gross Income. Capital gains and qualified dividends are counted the same as other income in determining the AGI. And yes, IRA Required Minimum Distributions, or any IRA distribution where one moves money from an IRA to a regular taxable account (or just plain cashes out) is part of AGI too.

Another stealth tax -- for those who are lucky enough to be able to itemize deductions -- only medical expenses above 10% of AGI are deductible. Thus as your AGI goes up, the medical expense deduction goes down (assuming any of it is deductible in the first place).

And another: the foreign tax credit is also tied to the AGI.

On inherited IRA's - My sister and I inherited an ordinary traditional IRA that my parents set up in a trust before they passed (the last one passed in 2004). We split the account and were each able to roll that over into our own individual Beneficiary Designation Account IRA (BDA-IRA) where we only have to take Required Minimum Distributions (RMDs) based on our ages. (We were, and are, both under age 70.5). So there isn't a big tax hit in one year, but rather smaller ones each year spread over our remaining life expectancies (sort of).

In the initial year we had to look up the divisor to use from an IRS table, based on our ages. For me, the divisor was 29.6. Meaning that in the first year I had to take a distribution of 1/29.6 = 3.38% of the end-of-year account's value. So if the account value at the end of year was $100,000, I'd have to take an RMD distribution of $100,000/29.6 = $3,378.

Each year thereafter, the divisor decreases by one. And each year I have to take an RMD distribution calculated as end-of-year account balance divided by Divisor.

In 2018 the divisor was 16.6, meaning I only had to take 1/16.6 = 6.02% of the account's value as an RMD distribution in 2018.

I'm surprised to hear that yours was all distributed and taxed in the first year. If one screws up, one has to RMD it all in 5 years. I've never heard of being forced to RMD it all away in one year.

A great resource of really knowledgeable helpful people about IRAs -- at least the last time I used it which was more than 10 years ago -- is irahelp.com