3.8% Annuity Income Surtax in the Health Reconciliation Act
New 3.8% surtax on annuities and other investment income. On Thursday, March 24, Congress ignored the letter signed by NAFA and three other retirement industry advocates and passed the Health Care and Education Reconciliation Act of 2010 (HR 4872).
Beginning in 2013, a new surtax of 3.8% applies to unearned income from annuities, interest, royalties, net rents, and passive income in partnerships and Subchapter-S corporations for households who earn in excess of $250,000 ($200,000 single). For more information see the Americans For Tax Reform and the Journal of Accountancy websites.
This additional surtax makes a Roth IRA Conversion even more compelling for retires with high incomes. ImagiSOFT added these new formulas into its Roth IRA Software over the weekend. Page 5 of this sample Roth IRA Conversion report shows a $3.4 million dollar benefit, party because it allows the client to escape the 3.8% surtax on investment income.