Thank you for your detailed and clear response. I'm surprised I ever did so well in grad school, but what does one expect of an aging Psychology major. LOLTibbits said what I was largely going to say so let me try it slightly differently. "Regular taxable income" has no meaning when it comes to NIIT - that's Net Investment Income Tax and note that "net investment income" is a single modifier to "tax" - it's not "net investment" "income tax" even though this is part of your income tax return. There's really only two types of income that are relevant: net investment income (NII) and all other income. In all other income is wages and salaries, pensions, tIRA distributions, and 401k distributions and anything else that does not meet the definition of "net investment income" (I see nothing that says 401k distributions do not count as "all other income" for NIIT purposes - i think you were reading what is excluded from NII and what is excluded from NII is what I mean here as "all other income").You're still not understanding. $58k "regular taxable income" in almost everyone's case will include some investment income; maybe just interest from HY savings or dividends from a MM fund. Let's say that's $5k. So if you do a $300k Roth conversion, you have $358k total taxable income and have to pay NIIT: 3.8% of $5k.Thank you. Sure seems like the IRS could hire you to revamp the instructions , or at least the Q and A, to make it clear like that. Total regular taxable income, if 58k in her case (under 250k theoretically) does not trigger NIT if the source of additional (unlimited/300k) taxable income is a distribution from a Traditional IRA. LOL I'll go rest easy.
NIIT is only due on NII - no NII, no NIIT. NIIT is also only due on NII to the extent that the total of NII and all other income exceeds, for a married couple, $250K. So the amount subject to NIIT is the lesser of NII and total income less $250K.
Examples:
1) $300K of tIRA distributions and $10K of interest for a total of $310K income. NIIT is paid on $10K because that's all the NII you had even though you exceeded the $250K by $60K
2) $200K of tIRA distributions and $10K of interest for a total of $210K income. NIIT is paid on nothing because your total income did not exceed $250K
3) $245K of tIRA distributions and $10K of interest for a total of $255K income. NIIT is paid on only $5K because you exceeded $250K by $5K
Now to your specific question, you askedNo she can not. As you state, $10K of interest and dividends. The $10K is NII so since your total income is $358.3K and that exceeds $250K, the $10K of interest and dividends, which is NII, will incur NIIT totaling $380. NIIT is imposed on the lesser of the NII ($10K) and total income ($358.3K) less $250K ($108.3K).If her income Pension and Int/Div remains constant in todays dollars, that would be 58.3 (2 pensions and one taxable 10k Div/Int.)
If I were to pass, can she do a 300k tIRA distribution to get her tIIRA down low enough to without triggering the 3.8% NIT?
Finally, I got it. PENSION, SOCIAL SECURITY and tIRA DISTRIBUTIONS have nothing to do with NIT other than putting your investment income subject to NIT if the total income is over 250k.
example one: if her total income from SS, Pension and tIRA distribution(Roth Conversions) was 249,999 and includes 10 kin investment income (Interest and Dividends), then no NIT tax is triggered.
example two: If her total income from Pensions, SS and IRA Distributions is 300k+ and she has 10k in investment income(div/int or other CG), then because of that higher income, NIT tax of 3.8% is due on that 10k only.
The only down side is having to do the form, which is not as clear as all that (for example, line 13 of f8960 calls for Modified Gross Income, with a "see instructions" that are not easy to find. I think I'll have her pony up to pay a CPA that one time upon my passing.
Thank you all for clarification!!
Statistics: Posted by capran — Mon Jan 29, 2024 9:38 am — Replies 123 — Views 9365
