Finance & Enjoyment Blog

2013's Medicare Tax Increase And How You Can Avoid It

A Medicare tax increase going into effect in 2013 may have a significant impact on your investing strategy. A 3.8% levy on unearned income will be assessed to single filers with adjusted gross income (AGI) over $200,000 or $250,000 for those joint filers. The 3.8% levy will be applied against the smaller of the filer’s net investment income or the excess of AGI over the threshold. To show an example of this, if a single filer has $300,000 and $50,000 of investment income, then they would pay the 3.8% against the investment income. However, if they had $300,000 in AGI and $150,000 of that was investment income, then the 3.8% would be levied on $100,000 since that is less than the investment income.


In order to minimize, or even avoid this surcharge, there are several things you can do to your investment accounts. This levy does not apply to tax-free interest or payouts from retirement plans. So one way to avoid this interest is shift from corporate bonds and stocks into municipal income that is tax-free to begin with. Another option is to start contributing to a Roth IRA account instead of putting your money in a savings or traditional investment account. This will prevent this surcharge once distributions are taken. Another way to prevent this surcharge is to sell any highly appreciated assets in 2012 rather than 2013 since any gain will be taxed at 15% rather than 18.8%. By selling these assets in 2012, there is the potential to save thousands of dollars.


Posted in Your Financial House » Retirement and Exit Strategies »



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