If I Convert $235k to a Roth IRA, Will It Affect My Medicare Premiums?

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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.

• Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.

• Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.

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