3.8% Medicare Tax on Net Investment Income

[Swuday]

Hypothetical:

$100,000 for yearly pension

$400,000 for yearly withdrawal from Traditional/Rollover IRA

Tax Status: Filing Jointly

My question is:

Does the money distributed from the IRA constitute a "Net Investment Income" as described for the 3.8% Medicare Tax?

If it does, would it be paid on the amount over $250,000?

[tagteam · Accepted solution]

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@Swuday wrote:

Does the money distributed from the IRA constitute a "Net Investment Income" as described for the 3.8% Medicare Tax?

If it does, would it be paid on the amount over $250,000?

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No. Distributions from retirement accounts, themselves, are not subject to the NIIT (net investment income tax).

However, such distributions factor into the MAGI calculation for the NIIT so the distributions could have the affect of making other types of income (e.g., interest, dividends, et al) subject to the surtax. 

So, in your hypothetical, if you also had $10,000 in ordinary dividends, that $10,000 would be subject to the 3.8% surtax.

[Swuday]

Thank you very much!