NIIT, IRMAA, RMDs: Why Tax Decisions Need a Multi-year Plan
Near the end of a tax year, several reasonable ideas can arrive at once. You may be considering a Roth conversion. A long-held investment may be ready to sell. You may also want to make a charitable gift before December 31.
Each move can look sensible on its own. The harder question is whether the moves still fit when they share the same tax return—and what that higher income may change later.
In retirement, timing matters because income rarely arrives in one steady stream. A decision made this year may increase a tax calculation now. It may also affect Medicare premiums later. Future required withdrawals can narrow the room available in another year.
What else is already on this year’s return?
A pension may continue after work ends. IRA withdrawals may begin later. Investment income can vary from year to year. When these sources overlap, the result may be different from reviewing each one separately.
When a return includes net investment income, the 3.8% Net Investment Income Tax (NIIT) may apply. The tax is calculated on the lesser of net investment income or the amount by which modified adjusted gross income exceeds the threshold for the filing status. [1]
A Roth conversion is not itself net investment income. It can still raise the modified adjusted gross income enough for NIIT to reach the investment income already on the return. [1]
Short-term and long-term gains are taxed differently. Losses can offset gains, but the wash-sale rule may disallow a loss if a substantially identical security is purchased within 30 days before or after the sale. [2][3]
Dovetail Principle: Financial Decisions Need to Fit Together
A tax decision can change more than the current tax bill. It may affect a future Medicare premium or how retirement accounts are used. Seeing those connections makes the timing easier to evaluate.
Why can a one-year move create a later cost?
Medicare uses modified adjusted gross income to determine whether an income-related monthly adjustment amount (IRMAA) applies. For this purpose, modified adjusted gross income is adjusted gross income plus tax-exempt interest. Social Security generally uses income information from two years earlier. [5]
A Roth conversion in one year may therefore affect Medicare premiums two years later. That does not make the conversion wrong. It means the future premium cost is in addition to the current tax cost.
Suppose you are considering a Roth conversion and selling a long-held investment. The conversion raises modified adjusted gross income. The sale may add net investment income. Completing both in one year could increase NIIT exposure. [1] The higher income may also affect Medicare premiums later. [5]
The same two decisions, made in different years, may produce different results. The useful comparison is whether the timing works when the moves are viewed together.
How do RMDs change the available years?
The starting age for required minimum distributions (RMDs) depends on the date of birth. Under current law, people born from 1951 through 1959 generally begin at age 73. People born in 1960 or later generally begin at age 75. [4]
Once RMDs begin, the withdrawals generally add ordinary income to the return. That income may leave less room for a Roth conversion or an investment sale in the same year. It may also increase the income used for a later Medicare premium review. [4][5]
The years between retirement and the RMD starting age may provide an opportunity to compare partial Roth conversions. They may also create room to realize gains at a different pace.
Roth conversions are taxable in the year of conversion. A conversion may reduce the balance used to calculate future RMDs. Whether that helps depends on the current tax cost and the other income effects. [7]
How can charitable giving change the picture?
Donating appreciated securities directly to an eligible charity may avoid recognizing the embedded gain. Bunching several years of gifts into a donor-advised fund may also be considered in a higher-income year. Deduction limits and organization eligibility still need review. [8]
A qualified charitable distribution (QCD) from an IRA is available beginning at age 70½. The transfer must go directly to an eligible charity. Within applicable limits, it can count toward an RMD and remain outside adjusted gross income. [6]
That lower-income number may matter for NIIT. It may also matter for IRMAA. A QCD and a donor-advised fund follow different rules, so the giving method should match the intended purpose.
What does a multi-year review actually compare?
Start with the next three to five tax years. Mark the years when income is likely to change. Then place known income on the timeline before adding optional decisions.
- Begin with the income that is already expected in each year.
- Add a proposed Roth conversion or investment sale one at a time.
- Compare the tax result in each year. Then review whether Medicare costs or future withdrawals change.
- Make charitable decisions when the timing supports the gift's purpose.
- Recheck the map before year-end.
Tax rules and Medicare thresholds can change. So can your plans. An annual review keeps the timeline useful without pretending every future number is known.
The goal is not to make every year look the same or avoid every surcharge. It is to choose timing with the consequences visible. Before making a year-end move, ask two questions: What is already on this return? What might this income change later?
For broader context on how Dovetail reviews tax decisions in retirement, see Retirement Tax Planning.
Related Reading: Can a Roth Conversion Affect Health Coverage Costs? A Roth conversion can start as a tax question, but the income it creates may affect health coverage costs later.
About the Author
Ross Marino, CFP®, CeFT®, is the Founder & CEO of Dovetail Financial and creator of Human-First Financial Guidance®. He helps people nearing or living in retirement connect their lives and wealth so that financial decisions become clearer, more personal, and easier to navigate.
Notes
- Internal Revenue Service, “Net Investment Income Tax,” IRS
- Charles Schwab, “Capital Gains Tax Rates: Short-term vs. Long-term,” updated 2026, schwab.com
- Legal Information Institute (Cornell Law School), “26 CFR § 1.1091-1 — Losses from wash sales of stock or securities,” law.cornell.edu
- Kiplinger, “Required Minimum Distributions (RMDs): Rules, Deadlines, and SECURE 2.0 Changes,” updated Nov. 7, 2025, kiplinger.com
- Social Security Administration, “SSA Handbook §2501: What is Modified Adjusted Gross Income (MAGI)?” Social Security Administration
- Fidelity Charitable, “What is a qualified charitable distribution?” updated 2026, fidelitycharitable.org
- Charles Schwab, “3 Strategies to Help Ease Your RMD Tax Burden,” updated 2026, schwab.com
- Fidelity Charitable, “Bunching Charitable Donations,” fidelitycharitable.org
Disclosure
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