IRA conversion strategy pushes retiree into higher Medicare bracket
A retiree planning a significant IRA conversion is facing a complex financial decision, as the move could trigger higher Medicare premiums. The individual, who currently has $60,000 in other income, intends to convert $120,000 from a traditional IRA to a Roth account before the end of the year. To cover the resulting tax liability, they also plan to withdraw an additional $29,000 from the IRA.
Approximately 8% of Medicare Part B enrollees are subject to income-related monthly adjustment amounts (IRMAA). Those with income at or below $109,000 for a single taxpayer (or $218,000 for joint filers) pay the standard $202.90 monthly premium. This retiree’s planned conversion will significantly impact their Modified Adjusted Gross Income (MAGI).
Withdrawals from traditional IRAs and Roth conversions are considered taxable income. The $29,000 withdrawal to pay the conversion tax is also subject to taxation. After accounting for the $16,100 standard deduction, the retiree’s taxable income will reach $192,900, resulting in an additional $6,960 in federal income tax.
Medicare premiums are tiered, with increases triggered at specific income levels. Crossing the $205,000 threshold will add $1,735.20 annually to combined Part B and Part D surcharges, bringing the total surcharge to $6,355.20 per year. Currently, the retiree already pays an extra $324.60 a month for Part B due to income exceeding $171,000.
Medicare uses a two-year lookback period, meaning 2026 income will affect 2028 premiums. The retiree could avoid the additional surcharge by paying the tax bill from savings, but this could trigger taxable capital gains if assets are sold. Alternatively, reducing the conversion amount allows the $29,000 withdrawal to remain within a total IRA distribution limit of $145,000.
Financial advisors recommend careful planning before Roth conversions, including calculating projected MAGI, estimating tax liabilities, and considering the impact on Medicare costs. Couples generally have higher income thresholds before incurring surcharges, with the relevant tier ranging from $342,000 to $410,000. The deadline for 2026 Roth conversions is December 31st.
Source
“He Will Convert $120,000 to a Roth and Take Another $29,000 From the IRA to Pay the Tax. That Will Push Him Past $205,000 Into Medicare’s Higher Premium Bracket”
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