Roth Conversion Planning and Medicare Premiums: Strategies to Minimize IRMAA Surcharges

Thomas, a retiree, is seeking advice on how to avoid paying extra for Medicare Part B premiums in 2026. He wants to transfer funds from his traditional TSP account to a Roth IRA in 2025 without exceeding the IRMAA threshold. The income figure that determines IRMAA brackets is the modified adjusted gross income (MAGI), which includes adjusted gross income and tax-exempt interest. A financial advisor can help with retirement income planning, considering RMDs, Medicare premiums, and tax considerations.

As retirees approach the end of 2025, the upcoming Medicare Part B premiums for 2026 are a significant concern, especially for those aiming to avoid income-related adjustments (IRMAA) surcharges. Thomas, a retiree, is seeking advice on how to manage his traditional TSP account and transfer funds to a Roth IRA without exceeding the IRMAA threshold. This article provides a strategic approach to financial planning to help retirees navigate these challenges.

Understanding the 2026 Medicare Premium Landscape

The 2026 Medicare Part B premium is expected to rise to $185/month, based on the 2024 figures [1]. The income-related adjustments (IRMAA) will also impact retirees' out-of-pocket expenses. Single filers earning over $106,000 or married couples exceeding $212,000 will face surcharges of up to $443.90/month for Part B and $85.80/month for Part D. These thresholds are based on 2023 tax returns, meaning income from two years prior determines today's costs [1].

Strategic Moves to Reduce Medicare Costs

1. Tax Planning to Lower Modified Adjusted Gross Income (MAGI)

To avoid IRMAA surcharges, retirees can lower their MAGI by implementing strategic tax planning. Thomas can consider the following actions:

- Roth Conversions: Convert traditional IRA funds to a Roth IRA during low-income years (e.g., early retirement) to reduce taxable income.
- Withdrawal Timing: Delay Social Security or 401(k) withdrawals until after retirement begins to lower MAGI in the year prior to Medicare's income assessment.
- Tax-Free Income Sources: Use municipal bonds or annuities to generate income that doesn't count toward MAGI.

2. Payment Management

- Part B IRMAA: Automatically added to monthly bills, but retirees can opt for Medicare's Easy Pay auto-deduction to avoid late fees.
- Part D IRMAA: Direct payments to Medicare are mandatory, even if an employer covers Part D. Ensure timely payments to prevent penalties.

3. Appeal Overpayments

If income has dropped due to life events (e.g., divorce, spousal death), retirees can file an appeal with the Social Security Administration within the 60-day window after receiving a notice.

Investment Strategies to Complement Cost Reduction

To generate stable, tax-efficient returns, retirees can focus on the following investment strategies:

- Dividend-Paying Utilities: Companies like Duke Energy (DUK) or NextEra Energy (ETR) offer stable, predictable dividends with minimal capital gains risk.
- Roth IRA Conversions: Use post-tax Roth contributions to grow tax-free withdrawals, reducing reliance on taxable accounts that inflate MAGI.
- Healthcare Sector ETFs: Exposure to healthcare stocks (e.g., Healthcare Select Sector SPDR Fund (XLV)) can offset rising medical costs while offering growth potential.
- TIPS (Treasury Inflation-Protected Securities): These bonds adjust principal for inflation, ensuring purchasing power stays intact.

Conclusion: Proactive Planning Pays Off

Thomas and other retirees can protect their savings and maintain financial stability by implementing proactive strategies to minimize Medicare Part B premium surcharges in 2026. By adjusting withdrawals, appealing overpayments, and diversifying portfolios, retirees can navigate the complexities of Medicare costs and secure their retirement income. Consulting a Medicare expert or financial planner is essential for those in higher income brackets to ensure comprehensive retirement income planning.

References

[1] https://www.ainvest.com/news/mastering-medicare-costs-2025-retiree-guide-strategic-financial-planning-2507/