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Medicare IRMAA: How a Roth Conversion Can Raise Your Premiums Two Years Later
IRMAA is a surcharge added to your Medicare Part B and Part D premiums when your income is above a set threshold. The part that surprises people is the timing. Medicare looks at the tax return you filed two years ago. A Roth conversion you complete this year can raise your premiums two years from now, long after the conversion itself feels like settled history.
If you are planning conversions in your sixties, this is one of the costs that belongs in the math.
What is IRMAA?
IRMAA stands for the Income Related Monthly Adjustment Amount. It applies to Medicare Part B and Part D, and it is based on your modified adjusted gross income.
The structure is a series of income brackets. Below the first threshold you pay the standard premium. Above it you pay the standard premium plus a surcharge, and the surcharge steps up at each higher bracket.
Two features of that design matter more than the dollar amounts.
First, it is a cliff rather than a slope. Going one dollar over a threshold moves you into the next bracket entirely. There is no gradual phase in.
Second, it applies per person. A married couple both enrolled in Medicare can each pay the surcharge, which doubles the cost of a bracket crossing.
Current thresholds and surcharge amounts are published each year by the Social Security Administration and are updated annually. Confirm the figures that apply to your year before planning around them.
Why does Medicare look back two years?
Medicare uses the most recent tax return the IRS has made available, which in practice is the return from two years earlier. Your premiums for a given year are generally determined by the modified adjusted gross income you reported two years before that.
The practical consequence is a planning blind spot. A large income event at age 63 shows up in your premiums at 65, right as you enroll. A conversion at 65 shows up at 67. People frequently complete a conversion, feel good about the tax result, and then receive a premium notice two years later with no memory of what caused it.
The flip side is also true. If your income drops, the relief is delayed by the same two years unless you qualify for an exception.
How much can a Roth conversion actually cost in premiums?
A Roth conversion adds the converted amount to your income for that year. If the conversion pushes you past a threshold, you pay the surcharge for a full twelve months, and your spouse pays it too if you both have Medicare.
Because the brackets are cliffs, the cost of crossing is not proportional to how far you cross. Going one dollar over costs the same as going several thousand dollars over. That makes the last dollars of a conversion the most expensive ones, and it is why conversion amounts are often sized deliberately to stop just below a threshold.
It also means the surcharge is a one year cost, not a permanent one. If you convert in a single year and your income returns to normal afterward, the surcharge applies for one year and then falls away. That is a very different calculation from a permanent tax increase, and it is why IRMAA alone rarely settles the question of whether to convert.
When does it still make sense to convert?
IRMAA is a cost, not a veto. Several situations often justify paying it.
A conversion that moves money out of a large pre tax balance can reduce future required minimum distributions, which can in turn reduce IRMAA exposure every year for the rest of your life. Paying one year of surcharge to avoid many years of higher income is frequently the better trade.
A surviving spouse eventually files as a single taxpayer, with narrower brackets on both income tax and IRMAA. Converting while both spouses are living can reduce that future problem.
A conversion can also reduce the tax burden inherited by children who are subject to the ten year withdrawal rule on inherited retirement accounts, particularly if those children are in their peak earning years.
The point is to make the decision with the surcharge included in the model rather than discovered afterward.
What if your income drops because of a life changing event?
Medicare allows you to request a reconsideration if your income has fallen because of a qualifying life changing event. Retirement or reduced work hours is one of the most common of these, which matters a great deal for someone who retires at 65 and is being charged based on a final year of full salary.
The request is made on Form SSA-44, filed with the Social Security Administration, with documentation of the event and an estimate of your current income.
The important thing to know is that a Roth conversion is not a life changing event. Voluntarily generating income does not qualify for relief. SSA-44 helps when your income fell for a reason on the approved list, not when it rose because of a decision you made.
How this fits into a broader retirement tax plan
For most households with a meaningful pre tax balance, the sequence of decisions in the years between retirement and the start of required minimum distributions carries more weight than almost anything else in the plan.
Those years often bring a temporary dip in income. That dip is the window where conversions are cheapest. It is also the window where IRMAA becomes a live constraint, because the tax cost and the premium cost do not line up neatly and the thresholds sit at different income levels.
Getting this right generally involves projecting income year by year through your seventies, layering in Social Security timing, capital gains, and eventual required distributions, then testing conversion amounts against both the tax brackets and the IRMAA brackets at the same time. It is a multi year exercise, not a single year decision.
Frequently asked questions
Does a Roth conversion count toward IRMAA? Yes. The converted amount is included in the income used to determine your surcharge for the applicable year.
How far back does Medicare look at my income? Generally two years. Premiums for a given year are usually based on the tax return filed two years earlier.
Is IRMAA permanent once I trigger it? No. It is determined annually. If your income returns to a lower bracket, your premiums adjust, subject to the same two year delay.
Can I appeal an IRMAA determination? You can request a reconsideration using Form SSA-44 if your income has decreased because of a qualifying life changing event, such as retirement. A Roth conversion does not qualify.
Do both spouses pay the surcharge? If both are enrolled in Medicare and the household income is above a threshold, each enrolled spouse is generally subject to the surcharge.
Oceanside Advisors works with retirees and pre retirees in Charleston, Mount Pleasant, and the surrounding Lowcountry on retirement income, tax, and investment planning.
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This article is provided for educational purposes only and is not tax, legal, or investment advice. Medicare thresholds, surcharge amounts, and tax rules change annually, and the treatment of any strategy depends on your individual circumstances. Consult a qualified tax professional before acting. Oceanside Advisors LLC is an SEC registered investment adviser. Registration does not imply any particular level of skill or training.