The Hidden Cost of Roth Conversions: Avoiding Surprise Medicare Charges
Dec 14, 2025
Roth conversions can significantly reduce taxes but may also lead to costly surprises with Medicare premiums. The discussion highlights how a single dollar increase in modified adjusted gross income can trigger IRMAA surcharges. A compelling case study illustrates how strategic conversions can save a couple nearly a million in taxes, yet if mismanaged, could cost them tens of thousands in premiums. Key strategies for navigating Roth conversions effectively call for careful planning to balance tax savings with Medicare expenses.
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Roth Conversions Can Trigger Medicare Surcharges
Roth conversions can unexpectedly raise Medicare Part B and D premiums due to IRMAA surcharges tied to MAGI.
Crossing a Medicare income threshold by even $1 can add substantial annual premiums for the entire year.
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Medicare Uses MAGI, Not Taxable Income
Medicare surcharges are based on modified adjusted gross income (MAGI), not taxable income.
MAGI is typically higher than taxable income because it excludes deductions like the standard deduction.
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Michael And Lisa Case Study
James uses Michael and Lisa as a case study to show real-world effects of conversion strategies.
Their plan to fill the 22% bracket appeared to save taxes but unintentionally increased Medicare surcharges.
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Roth conversions can save thousands in taxes, but they can also trigger Medicare IRMAA surcharges that quietly add up to more than $5,000 a year. Most retirees never see it coming, because the rules for Medicare premiums don’t line up with the tax brackets everyone focuses on.
In this video, James breaks down how Roth conversions interact with Medicare Part B and Part D premiums, why modified adjusted gross income matters more than taxable income, and how crossing a threshold by even one dollar can change your costs for an entire year. The case study shows how a couple could save nearly a million dollars in lifetime taxes… but lose tens of thousands to unnecessary IRMAA charges if they convert without a plan. A small adjustment (converting up to the right tier instead of the wrong bracket) boosts their long-term wealth and avoids surprise premiums.
If you’re planning Roth conversions before RMDs begin, evaluating a 401(k)-to-Roth strategy, or trying to minimize taxes in early retirement, understanding Medicare thresholds is essential. A smart conversion plan balances tax savings with premium costs so you don’t give back what you worked so hard to save.
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