A couple retired at 64 with a plan to convert part of a traditional IRA to a Roth in their first low-income year. They converted $300,000 in one tax year, paid the federal income tax, and expected the higher tax cost to be manageable. When they turned 65, Medicare premiums increased due to IRMAA, which uses modified adjusted gross income from two years earlier. Their base retirement income was $80,000, and the conversion raised MAGI to $380,000. That MAGI placed them in a higher Medicare premium tier for two consecutive years because the high-income tax return remained within the lookback window. The resulting avoidable surcharge was about $19,200, and spreading the conversion across multiple years could reduce or avoid the premium jump.
"IRMAA (income-Related Monthly Adjustment Amount) works as a cliff. Cross a bracket by a single dollar, and your premium jumps for the entire year. At a joint MAGI (modified adjusted gross income) of $380,000, Linda and Mark land in the fourth MFJ (married filing jointly) tier for 2026, with a combined Part B and Part D surcharge of roughly $4,800 per spouse per year. For the couple, that is $9,600 a year, and because the high-income tax return follows them through the lookback window, the surcharge applies across two consecutive Medicare premium years."
"The higher cost goes beyond the income tax on the conversion itself. It is the Income-Related Monthly Adjustment Amount, IRMAA, which uses your tax return from two years before to set your Medicare Part B and Part D premiums when you turn 65."
"Linda and Mark retired at 64 with a clean plan: convert a chunk of their traditional IRA to a Roth in their first low-income year, before Social Security and required minimum distributions complicated the picture. They moved $300,000 in one tax year, paid the federal income tax, and felt good about the math. Then the Medicare bill arrived for their 65th birthday year, and the surcharge wiped out most of what they thought they had saved."
"Had the same $300,000 been spread across three tax years, the couple could have stayed"
#roth-ira-conversions #medicare-irmaa #retirement-planning #tax-brackets #medicare-part-b-and-part-d
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