Individuals converting funds from traditional IRAs to Roth IRAs should be aware that these conversions are counted as ordinary income on their federal tax returns for the year in which they occur. This can lead to a significant increase in income, particularly concerning for those nearing Medicare eligibility, as it may trigger an Income-Related Monthly Adjustment Amount (IRMAA) surcharge. In 2026, this surcharge could add between $1,148 to $6,936 annually per person depending on income levels.
According to Fidelity’s retirement analysis, Roth conversions increased by 41% in the first quarter of 2026 compared to the previous year, indicating that more pre-retirees may face increased Medicare costs as a result. The IRMAA surcharge applies to individuals based on their Modified Adjusted Gross Income (MAGI) two years prior. For married couples filing jointly, the surcharge begins when their income exceeds $218,000, while single filers face a threshold of $109,000.
Certified financial planners emphasize the importance of strategically planning Roth conversions to avoid crossing the IRMAA thresholds, which can push pre-retirees into higher Medicare premium tiers. For example, a married couple with a base income of $170,000 could potentially convert $48,000 without incurring additional Medicare surcharges. In contrast, a larger conversion could significantly increase their MAGI and lead to steep surcharges.
The timing of conversions is critical, as larger withdrawals may be mandated later in life, such as when required minimum distributions start. Financial experts advise ongoing adjustment of conversion strategies to align with both tax brackets and IRMAA thresholds to minimize unexpected costs.
Why this story matters:
- The financial implications of Roth conversions extend beyond income taxes; they can significantly impact Medicare costs for pre-retirees.
Key takeaway:
- Careful planning of IRA conversions is crucial to avoid unwanted increases in Medicare premiums.
Opposing viewpoint:
- Some argue that the long-term tax advantages of Roth IRAs outweigh the short-term Medicare surcharge risks associated with conversions.
