Will My $100k Roth IRA Conversion Trigger Higher Medicare Premiums?

Converting a traditional IRA to a Roth IRA can be an attractive option for many investors, offering tax-free withdrawals in retirement. However, one concern that arises is whether this conversion could trigger higher Medicare premiums due to an increase in income. Let's explore this topic and provide some insights to help you make an informed decision.

Understanding Medicare Premiums and IRMAA

Medicare Part B and Part D premiums can be subject to an Income-Related Monthly Adjustment Amount (IRMAA) for beneficiaries with higher incomes. The IRMAA is based on the beneficiary's modified adjusted gross income (MAGI) from two years prior. In 2025, Medicare beneficiaries with income over $106,000 (for single tax filers), $212,000 for joint filers, and $106,000 (for married people that file separately) will pay the surcharge.

Roth IRA Conversion and Income

When you convert a traditional IRA to a Roth IRA, the amount converted is treated as taxable income for that year. This increase in income could potentially push you into a higher income bracket, triggering the IRMAA and higher Medicare premiums. For example, if you convert $100,000 from a traditional IRA to a Roth IRA, you would need to report that amount as taxable income in the year of the conversion.

Strategies to Mitigate the Impact

To minimize the risk of triggering higher Medicare premiums, consider the following strategies:

1. Spread the conversion over multiple years: Instead of converting the entire amount at once, consider converting smaller portions over several years. This approach can help keep your income within the IRMAA thresholds and avoid higher Medicare premiums.
2. Time the conversion properly: If you have a one-time spike in income, such as from the sale of a property or a large bonus, consider converting your traditional IRA to a Roth IRA in the same year. This strategy can help avoid the IRMAA in subsequent years when your income returns to a lower level.
3. Consult with a financial advisor: A financial advisor can provide personalized advice tailored to your specific situation, helping you navigate the complexities of Roth IRA conversions and their potential impact on Medicare premiums.

Long-term Benefits of Roth IRA Conversions

Despite the potential short-term impact on Medicare premiums, Roth IRA conversions can offer significant long-term benefits, such as:

1. Tax-free withdrawals in retirement: Qualified withdrawals from a Roth IRA are tax-free, allowing you to keep more of your money in retirement.
2. No required minimum distributions (RMDs): Roth IRAs have no RMDs during the account holder's lifetime, giving your money more time to grow tax-free.
3. Potential avoidance of the Medicare surcharge (IRMAA): By converting a traditional IRA to a Roth IRA, you can potentially avoid the Medicare surcharge (IRMAA) in the future if your income remains below the threshold.

In conclusion, converting a traditional IRA to a Roth IRA can be a valuable financial move, but it's essential to consider the potential impact on Medicare premiums. By understanding the IRMAA, spreading the conversion over multiple years, and timing the conversion properly, you can mitigate the risk of higher Medicare premiums and enjoy the long-term benefits of a Roth IRA. As always, consult with a financial advisor to make the best decision for your specific situation.