Will my $100,000 Roth IRA conversion trigger higher Medicare premiums?

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Convert money from a tax-deferred retirement account ah Roth IRA can cause Medicare premiums for Part B and Part D to rise, in some cases dramatically, because Medicare premiums are tied to income brackets. When retirement funds are rolled over into a Roth account, the converted amount is treated as income. If the converted amount is large enough, it can push the Medicare recipient to a higher level and cause the premium to increase.

There are several strategies to manage this potential premium hike, including converting at least two years before enrolling in Medicare and using various means to reduce the amount of income used to calculate brackets. A financial advisor can help build financial models and run simulation scenarios to make it easier to choose the right move in a Roth conversion.

Most people Medicare pay the standard Part B premium, which is adjusted annually based on expected increases in health care spending. However, for those with incomes that measure above a certain level using a benchmark called Modified Adjusted Gross (MAGI)premiums are increased based on a Income-related monthly adjustment amount (IRMAA).

MAGI is calculated by taking total gross income, including funds converted to a Roth account, as well as tax-free interest and some nontaxable Social Security benefits, and adding applicable deductions. Medicare uses the MAGI figures from the tax return filed two years prior to the current year to set premiums.

For example, for 2024, the standard premium is $174.70 Part B. This is the Part B premium paid by individuals filing as singles who had 2023 MAGI of $106,000 or less, or taxpayers filing as married couples with 2023 MAGI of $212,000 or less. Here’s the full breakdown of Part B premiums based on MAGI:

Single Filer MAGI	MAGI joint filer	Part B Premium
$106,000 or less	$212,000 or less	$185
$106,000 to $133,000	$212,001 to $266,000	$259
$133,001 to $164,000	$266,001 to $330,000	$364.30
$164,001 to $500,000	From $330,001 to $750,000	$469.60
$500,001 or more	$750,001 or more	$628.90

As this table shows, higher MAGI levels can mean much higher Medicare costs. The difference in premiums between a couple earning $206,000 and a couple earning $760,000 is $443.90 per month per policyholder, which equates to another $5,326.80 per year per policyholder. If both members of a couple are on Medicare, the total increase in premium costs would exceed $10,000 per year. (If you need help navigating your Medicare coverage, consider using this free tool to match with a fiduciary financial advisor.

Medicare Part D premiums, which pay for prescription drug coverage, are also affected by IRMAA. However, these premiums are smaller than Part B to begin with, so they don’t have as much of an impact when and if they go up.

For a single Medicare enrollee with $80,000 in MAGI before any Roth conversion, doing a $100,000 Roth conversion could result in $180,000 in MAGI. This would move the single filer into the fourth group of the IRMAA, resulting in a Part B premium of $469.60. That’s $284.60 more per month than the Medicare premium before the conversion, which equates to $3,415.20 for the year.

For a married couple filing jointly who had $100,000 in MAGI, a Roth conversion of $100,000 would increase their MAGI to $200,000. This would keep them in the first IRMAA group so they would pay the standard Medicare Part B premium of $185.

Several strategies can help Medicare enrollees avoid higher premiums. One is a gradually convert a retirement account into a Roth account so that the MAGI for each year remains within the current bracket or perhaps the next highest bracket. Note, however, that unlike marginal income tax brackets, IRMAA brackets are all or nothing. Going even $1 to the next higher tier means your Medicare Part B premium will increase by the full amount dictated by IRMAA. Conversely, filling a bracket with MAGI to the top of the bracket does not result in an increase in your Medicare Part B premium

It can be difficult to accurately forecast revenue from all sources, so a conversion amount that works in a financial model may not work when the actual final revenue figures are available. Because of this, lanners may convert a little less than seems safe, so there is room for error.

Also note that IRMAA looks at MAGI from two years earlier, but uses tables that are updated each year. As a result, a current MAGI figure that appears likely to result in an IRMAA premium increase may not be a factor using the inflation-adjusted tables two years into the future.

The fact that IRMAA looks back two years suggests a strategy that can be highly effective. That is, performing Roth conversions at least two years before enrolling in Medicare. If this is done, the Roth conversion will have no effect on Medicare premiums.

Another possibility when considering a large increase in the IRMAA premium is to turn to Social Security. Certain life-changing events such as a change in employment status, marriage, divorce, death of a spouse, or retirement can be cited to convince the agency that Medicare premiums should not be increased.

Other methods of Medicare premium management focus on reducing revenue. Contributions to Health Savings Accounts (HSAs), tax loss collection and doing charitable contributions All can be effective ways to reduce MAGI depending on the circumstances.

consider talking to a financial advisor who can help you navigate Medicare, Roth conversions, tax strategies and more.

Converting a large tax-deferred retirement account to a Roth account can have an effect on Medicare premiums. Depending on your tax return status and other income, a $100,000 Roth conversion could cause your Medicare premiums to increase significantly. Several different strategies can reduce this effect. They include converting at least two years before applying for Medicare, appealing to special circumstances and reducing income through tax loss harvesting and charitable donations.

Consider talking to a financial advisor about the prospects for a Roth conversion that increases your Medicare premiums. Finding a financial advisor doesn’t have to be difficult. The free SmartAsset tool connects you with up to three financial advisors in your area, and you can interview your advisors 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, start now.
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