Ray Is Making Too Much Money

Bonnie got the mail.

Dudley and Betty were at Ray and Bonnie’s for dinner when Bonnie came in from the kitchen carrying an envelope.

She handed it to Ray. “Somebody took out more money.”

Ray looked at the envelope. “Who?”

“Medicare.”

Dudley kept eating. He had learned that not every financial conversation occurring within hearing distance required his participation.

“How much?” Ray asked.

Bonnie told him.

Dudley stopped chewing.

Betty noticed.

“No.”

“I didn’t say anything.”

Betty took another bite.

Across the table, Ray was studying the letter.

“They got me again.”

Dudley lasted another few seconds.

“IRMAA?”

Ray looked over.

“Yep.”

The streak was over.

Bonnie sat back down.

“I still don’t understand why they keep taking more.”

Ray folded the letter and set it beside his plate.

“Because apparently I make too much money.”

Bonnie looked around the kitchen.

“You’re retired.”

“That’s what makes it impressive.”

Dudley laughed.

Ray had reached the age when required minimum distributions were forcing money out of his traditional retirement accounts whether he needed it or not. The withdrawals counted as taxable income, and enough income could also increase his Medicare premiums.

Bonnie pointed toward the letter.

“So we get taxed on money we don’t need to take out, and because we took it out, Medicare charges us more?”

Ray nodded.

“Pretty much.”

Bonnie picked up her fork.

“Well, that’s stupid.”

Dudley began to explain why it wasn’t exactly—

Betty touched his arm.

He stopped.

Bonnie’s explanation was sufficient.

It was, Dudley knew, a very good problem. Ray and Bonnie weren’t worried about paying the electric bill or wondering whether the money would last. They had spent decades living below what they earned, saving, investing, paying things off and generally behaving like people who expected tomorrow to arrive.

Tomorrow had arrived. Quite a few times.

Now the accounts had grown enough to create a new category of annoyance.

Ray smiled.

“I suppose there are worse things than making too much money in retirement.”

“There are,” Dudley said.

“A lot worse.”

Ray looked at the letter again.

“But if you can keep more of your own money, you might as well.”

That sounded like Ray. He wasn’t greedy or obsessed about money. He was practical.

Stewardship had always looked like that in Dudley’s house growing up: take care of what you have, don’t waste it, help people when you can and don’t give money away unnecessarily because you weren’t paying attention.

Ray took another bite.

“You know what I should’ve done?”

Dudley looked up.

“What?”

“Converted more to Roth when I had the chance.”

Dudley leaned forward.

“When?”

“After I retired. Before all this kicked in.”

Ray gestured generally toward his retirement accounts, Medicare, the government and perhaps aging itself.

“My income was lower for a while. I could’ve moved more out of the traditional accounts, paid the tax then and let it grow in Roth.”

“Why didn’t you?”

Ray shrugged.

“Didn’t think enough about it.”

That caught Dudley off guard. Ray knew money, not professionally, but from a lifetime of being responsible with it. Dudley had learned a great deal simply by watching Ray and Bonnie save first, pay their bills, avoid stupid debt and take care of their family.

Ray had gotten a lot right.

“I missed that one,” Ray said.

Dudley smiled.

“You missed one?”

“A few, probably.”

“That is deeply unsettling.”

Ray laughed.

“You think you’re going to get them all?”

Dudley considered lying.

“No.”

“Good.”

As Dudley got older, something strange had been happening.

His parents were getting smarter.

When he was younger, they were simply his parents. They went to work, paid bills, fixed things, saved money and worried about things Dudley thought were boring.

Now he could see what all those ordinary decisions had built: a house, retirement savings, family dinners, grandchildren who came over and enough margin that an unexpected bill was irritating instead of catastrophic.

Ray and Bonnie had built that life a little at a time.

Dudley was standing in it.

He was where he was, in no small part, because they had done it first. Now they were doing old age first too, and Dudley was beginning to appreciate how useful that was.

Ray leaned back in his chair.

“If I were you, I’d look at it before you get to where I am.”

“Roth conversions?”

“Yep.”

“How much?”

Ray smiled.

“I don't know how much. Depends on your income. Taxes. What else you've got going on. Laws change.”

“So what’s the strategy?”

“Don’t wait until somebody tells you how much you’re taking out.”

Dudley laughed.

“That’s your strategy?”

“Look at it every year. If you’ve got room to move some money and the taxes make sense, think about doing it.”

Dudley nodded.

“And if I don’t?”

“Then someday maybe you get a letter like that.”

Ray pointed toward the Medicare envelope.

“Great problem to have.”

He took a drink.

“Still a problem.”

Then Ray got quieter.

“There is one other thing.”

Dudley looked at him.

“If something happens to you first, Betty gets the accounts.”

Betty looked up.

The table got quieter too.

Ray continued.

“She may have the money, but she won’t have your tax return.”

Dudley understood what he meant. Eventually there could be one person instead of two, with single tax brackets and the same tax-deferred accounts still sitting there.

Ray looked at Betty.

“Roth money’s a lot cleaner.”

“Tax-free?” Betty asked.

“Qualified withdrawals, yes.”

Ray turned back to Dudley.

“If you’ve already paid the tax, she doesn't have to figure out how to manage a big traditional account and the tax bill that comes with it.”

Dudley looked at Betty.

Until then, Roth conversions had been another optimization problem: tax brackets, RMDs, Medicare, pay now versus later. Interesting, certainly, but still numbers.

Ray had turned it into Betty sitting alone at a kitchen table.

Dudley didn’t like that picture.

Ray knew it.

“That’s part of taking care of her too.”

Dudley nodded.

“Yeah.”

Bonnie reached over and touched Ray’s arm.

Nobody said anything for a moment.

Then Bonnie looked at Dudley.

“Don’t get weird about it.”

Betty laughed.

“That may be too late.”

On the drive home, Dudley was quiet.

Betty looked over.

“You’re thinking.”

“Yeah.”

“About the Roth thing?”

“Some.”

“And your dad.”

“Mostly.”

They drove for a while.

“The older I get, the more I appreciate that they went first.”

Betty smiled.

“They’re good parents.”

“Yeah.”

Dudley looked out the windshield.

“I used to think Dad just worried about money.”

“And now?”

“I think he was taking care of everybody.”

Betty reached over and put her hand on his arm.

“They weren’t perfect,” Dudley said. “Dad just told me he missed this one.”

“Everybody misses things.”

“I know.”

“But they did a lot right.”

“Yeah.”

Ray and Bonnie had not handed Dudley a retirement manual. They had handed him something better: an example.

And by living longer than he had, they kept adding notes in the margins.