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Because Medicare premiums are tied to income, converting a $235,000 retirement account to a Roth IRA has the potential to cause Medicare Part B premiums to increase. For many taxpayers, in fact, a single-year conversion of that magnitude could more than triple the amount of the monthly premium most Medicare enrollees pay for Part B coverage. However, that’s not certain. Much depends on the enrollee’s income level before the conversion and other details. And it’s possible to use some strategies that could reduce or even eliminate the premium increase while still taking advantage of the benefits of a Roth conversion.
If you’re contemplating converting retirement funds to a Roth account, consider talking over the implications with a financial advisor.
Most people pay the same monthly premium to Medicare for Part B coverage. For 2024, this premium is $174.70 per month. It adjusts annually to reflect inflation and usage patterns that affect Medicare’s cost of doing business. Beginning in 2025, the standard premium is $185, an increase of $10.30, or $123.60 annually.
For higher-income enrollees, Medicare applies a surcharge to Part B and Part D premiums. This is called the Income-Related Monthly Adjustment Amount (IRMAA). The size of the surcharge varies according to income, using a specific income measure called Modified Adjusted Gross Income (MAGI), so that higher earners pay more. The surcharge also varies by filing status.
Brackets set up by filing status and income are used to determine IRMAA premiums. These brackets change annually, as does the Part B premium amount. For 2025, the Part B premium is $185. Here is a table showing IRMAA brackets for 2025:
At the higher income levels, clearly, IRMAA packs a sizable financial punch. A single filer earning more than $500,000 will pay $628.90 per month or $7,546.80 per year, compared to the $185 monthly or $2,220 per year paid by someone earning $106,000.
An important wrinkle to the IRMAA regulations is that the adjustment is applied to the current year’s premiums using the enrollee’s MAGI from two years earlier. So an increase in income this year won’t result in higher Medicare premiums this year.
Also note that IRMAA also applies to Part D premiums. However, since these premiums are much smaller than Medicare Part B premiums, the financial impact of an IRMAA-hiked Part D premium is relatively minor.
A financial advisor can help you navigate Medicare and other retirement considerations. Use this free tool to match with up to three vetted fiduciary advisors.
Since retirement funds transferred from a tax-deferred account to a Roth IRA are treated as ordinary income, converting a $235,000 IRA could significantly increase MAGI and result in higher Medicare Part B premiums. Assuming the taxpayer had $100,000 in MAGI before the conversion, they would pay the $185 unadjusted Medicare Part B premium without any conversion.
Adding $235,000 in converted funds to their MAGI for a total of $335,000 results in a significant increase in their Medicare premiums. This puts them in the second-highest income bracket in the IRMAA tables. Their Medicare Part B premium as calculated using the IRMAA table would now be $591.90, or $7,102.80 per year. That’s enough of an increase to warrant looking at ways to mitigate it. (Remember, the two-year income consideration may alter this estimated amount. Talk to a financial advisor for more specific guidance based on your situation.)
One way you may be able to mitigate the impact of IRMAA is to gradually convert the retirement funds to the Roth IRA, spreading the converted amount over several years. A common strategy is to convert just enough each year to bring the taxpayer’s income up to the top of the current bracket or the next bracket.
In this case, converting $33,000 in a single year would bring the income from $100,000 up to the top of the second-lowest income bracket, which goes from $106,000 to $133,000. That would in theory increase the Medicare Part B premium for 2025 by $74 to $259, a relatively modest amount compared to $591.90 if the entire retirement account were converted in a single year.
Other IRMAA management approaches use general-purpose income-reduction methods such as contributions to charity and Health Savings Accounts (HSAs). Any decrease in MAGI can potentially keep a Medicare enrollee from being moved into a higher income bracket on the IRMAA table and result in a smaller adjustment or no adjustment at all.
Remember, there may be significant tax implications of Roth conversions and other income-reduction strategies. Consider speaking with a financial advisor for professional guidance.
Converting a $235,000 retirement account to a Roth IRA is likely to have some effect on Medicare premiums. These will show up mostly in Part B premiums, and at higher income levels the adjustments can be quite significant. Depending on the Medicare enrollee’s income from other sources, the impact of a $235,000 Roth conversion could more than triple the usual Medicare premium. By spreading out the conversion over several years and employing other methods of reducing income, however, an enrollee may be able to reduce or eliminate the Medicare surcharge.
Developing a plan for converting a retirement account while minimizing the effect on Medicare premiums is something a financial advisor can help you with. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
In order to plan effectively for a financially secure retirement, you need to know how much you’ll need and whether what you’re saving now is enough. SmartAsset’s Retirement Calculator can answer both those questions and more.
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