Fair share❓

If you invest in a 401k or traditional IRA the money you take out is taxed as ordinary income and will be included in your MAGI to determine any Obamacare subsidies and your IRMAA Medicare premiums.

If you invest in a Roth version of either plan, what you earn is tax free and is not counted in your MAGI and thus does not affect your premium payments. So, you could earn $1,000,000 in your Roth and still receive Obamacare subsidies and avoid paying extra for Medicare.

ONE THE OTHER HAND, if you invest in municipal bonds paying lower “tax-free” interest to benefit governments in their borrowing costs, that interest is included in your MAGI and will negatively affect any Obamacare subsidies and will count toward higher Medicare premiums.

Is there any logic here?

Seems like regardless of the source of your income – taxable or not – it should count toward being subsidized by other taxpayers for health care coverage. Either you have the income or you don’t, taxable or not is hardly relevant.


  1. “ Why no complaint about the lower tax rates on capital gains? Why is it different from ordinary income?”

    Long term capital gains (LTCG) are taxed at a lower rate for two reasons :

    1. Unlike wage income which can be spent immediately, you have to hold LTCG for a year, subjecting it to the effects of inflation… the lower rate is a recognition of this reality
    2. It is in the interests of the government to encourage longer term holding. This allows for longer term planning, employment and capital acquisitions instead of just the next quarter.

    There are two good reasons for you. Please consider them.


    1. Maybe #2 is a good reason, but #1 is not a good reason. Before the unrealized gains become long term, you do have the option to spend them immediately like wages, just they are short term gains at that point. It is a decision by you to not recognize the gains until after a year has past. Why is it fair for taxpayers to have to cover your reduced taxes because you have enough other income to live on & took a risk with your excess money? Is that really fair? One can logically justify about anything, but does it make it fair for the other taxpayers?


      1. Taxes are not fair. Taxes have never been fair. Taxes are ARBITRARY. Anyone who stupidly says people should pay their “fair share” know nothing about public finance. Only idiots like Brandon, Pocahontas and Bernie talk about tax fairness.

        These same fools think of FICA as a regressive tax. Yes, FICA only applies to the first $147,000 of wages in 2022. However, keep in mind that the only thing more “regressive” than FICA taxes are the benefits they fund.

        Same is also true regarding Medicare. Someone who earns $100,000 a year, pays $1,450 in Medicare taxes and has her wages reduced another $1,450 for the employer share. Say she starts employment at age 18 in 1994, and works for 50 years, (age 18 – age 67) and that she averages $100,000 a year. She will cause to be contributed to Medicare Part A alone about $150,000. She is likely also contributing an equal amount for Medicare Part B and Part D throughout her working years and unlike Medicare Part A, her Part B and Part D taxes (general revenues, income taxes) continue into retirement – potentially including IRMAA. Adjust those monies for earnings, and you have at least $1MM.

        For comparison, take someone who earned the minimum to qualify for Medicare, 40 quarters at the minimum. They are also likely to qualify for Medicaid, dual eligible, where there would be no point of purchase cost sharing and the Part B and Part D premiums would be waived. We’re talking about less than $1,000 in FICA-Med taxes over 40 quarters and no income taxes.

        Fair? Hell no. ARBITRARY.


  2. On the other hand, the Roth is billed as tax free income and it would be difficult to say that it isn’t when certain situations come up. The muni bonds have non taxable interest generally but the feds have no hesitation applying it in various situations. That may not seem fair but people know that when the bonds are purchased or should know. The bonds are outside a retirement wrapper.


  3. Like other stupid “ability to pay” programs (think student loans, etc.), measuring income in a specific calendar year makes no sense unless you also measure accumulated wealth.

    Let’s say you own a $100MM home outright, and that you are a billionaire where all of your wealth is tied up in a Fortune 500 corporation where you are the majority stockholder. For “income”, you borrow against your equity investments or your home equity to the tune of $300,000 a year. You have no wage or other income to speak of, other than your Social Security benefit of $40,000 a year, but you are 72 years old and you have started Medicare coverage.

    Make any sense that your neighbor, who is also single and who was born on the same day, and who has income from Social Security, his pension, and a required minimum distribution from IRAs totaling $91,001, should have to pay IRMAA of $68 a month?

    All of this, like every other tax code provision, is ARBITRARY. Disagree? Think there is some science to this? Think there is intention to be “fair”? If so, tell me, why is the threshold different for single versus joint tax return filers, why is the threshold $91,000 versus some other number, why isn’t the IRMAA tax pro-rated, why isn’t the IRMAA tax deductible?


    1. Did you get to deduct your Medicare B & D premiums? IRMAA is not a tax, it is returning part of the 75% subsidy on Medicare premium one automatically receives if they stay below a MAGI threshold. Actually if you are self-employed you can reduce your AGI by the amount of IRMAA you pay. Why no complaint about the lower tax rates on capital gains? Why is it different from ordinary income?


      1. Thanks. Kind of reinforces my point – it is all ARBITRARY – including the different tax treatment of wages and capital gains. The “reward” for maintaining income below the threshold is one more example of ARBITRARY.

        And, no, because IRMAA is a function of MAGI (income), it has all the earmarkings of a tax – no matter what they call it. And, yes, Part B and Part D “premiums”, like IRMAA, are eligible for tax preferred treatment – unlike the Medicare Part A premiums known as “FICA-MED”. All ARBITRARY.

        Remember the idiocy of Chief Justice John Roberts, in NFIB v. Sebelius, where he found the individual mandate to be a tax, even though Congress confirmed, over and over and over, that the individual mandate was not a tax. Keep in mind that there are a ton of taxes, so labeled, in PPACA!

        My apologies to Shakespeare, “A tax by any other name would smell just as bad.”


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