Want to Avoid the IRMAA? Consider a Roth Conversion
Nobody wants to pay more for the same benefits, but that’s the case for certain retirees on Medicare, and they have the IRMAA to thank.
The Income-Related Monthly Adjustment Amount, or IRMAA for short, is an extra charge added to the monthly premiums for Medicare Part B and Part D if your modified adjusted gross income (MAGI) from the two prior years exceeds certain limits.
The extra expense for 2025 can range from $888 to $5,326.80 per year for Medicare Part B, and $164.40 to $1029.60 for Medicare Part D, depending on how much your income exceeds the threshold.
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IRMAA’s negative impact
You might think the IRMAA won’t apply to you, since your income in 2025 has to exceed $106,000 as a single filer and $212,000 as a couple. However, it may, when taking into account pensions, dividend-paying investments, capital gains, and required minimum distributions.
Plus, the IRMAA is based on your earnings from two years prior, which means for 2025, it’s based on your 2023 income. “People don’t know what IRMAA is,” says Nancy Gates, lead educator and financial coach at Boldin. “They could pay three times what everyone else pays for Medicare.”
You may not think it’s a big deal if you are retiring with a sizable nest egg, but the money owed is deducted from your monthly Social Security check, which many retirees rely on for their cash flow.
“If your Social Security is now 10% less every month, that’s a very tangible consequence,” says Derrick Longo, a wealth advisor at Exencial Wealth Advisors. “Even for people who have adequate savings, Social Security is still a steady source of income.”
That’s particularly true in the current environment in which stock market volatility has hurt many retirees’ investment portfolios.
If you’ve received an Initial IRMAA Determination from the Social Security Administration stating that you’ll be subject to IRMAA on your Medicare Part B and D premiums, you can try to appeal. Gates says you can file an appeal to the Social Security Administration (SSA) if you have a life-changing event, such as retirement, and SSA may exempt you from IRMAA.
But you may not be able to get an exemption, Gates says, depending on circumstances, such as if you have big after-tax dividend payments or made a profit on the sale of your house, or you and your spouse both have pensions and/or RMDs.
“Every situation is different, but IRMAA really impacts many people after RMDs kick in,” says Gates.
Roth conversion for the win
The good news is that there is a strategy you can employ that can help you avoid IRMAA when it comes to RMDs: Roth conversions.
This occurs when you move money out of a traditional IRA or 401(K), 403(b), or 457(b), pay taxes on the withdrawals, and shift the money into a Roth IRA to enjoy future tax-free growth. Beyond the potential for tax-free gains, Roth IRAs have no required minimum distributions and allow tax-free withdrawals after five years and the age of 59-1/2.
This strategy helps in avoiding the IRMAA as it means that in future years, you won’t have to withdraw money, add to your MAGI and potentially pay more for Medicare.
Be forewarned that even with a Roth conversion, there could be some bracket creep if you had a lot of capital gains or your income still exceeds the MAGI threshold, says Longo.
That doesn’t mean a Roth conversion isn’t still worthwhile. After all, it’s a tax-efficient way to leave money to heirs and to protect your spouse from big tax hits when you pass away.
Timing is everything
Gates says Roth conversions work best when you have an idea of your tax rates across your lifespan and know the highs and lows. From there, you can explore strategies such as Roth conversions to avoid or reduce IRMAA fees.
You can spread the Roth conversions out over the years when your tax bracket falls to remain under your desired/specific tax and IRMAA thresholds, and not face a big tax bill, she says.
For those who are in lower income ranges or who are planning to retire early, converting before age 63 can be especially advantageous. That’s because most individuals enroll in Medicare at age 65, and so their income before 63 will not impact their Medicare Premiums, she says.
“Taxes are the primary driver of the Roth conversion strategy, and IRMAA is often secondary,” says Gates. She says people should take advantage of Roth conversions during the years they are in lower tax brackets and before they begin collecting Social Security, pensions, and RMDs (which kick in at age 72 or later, depending on your birth date).
“As long as you stay in the 12% tax bracket, you’re under the IRMAA threshold. In the 22% tax bracket, you could be under the threshold or fall into the first tier,” says Gates.
To avoid IRMAA, time is of the essence. You’ll need to start and complete the Roth conversions three years before you apply for Medicare, because of the two-year look-back period.
For instance, someone planning on applying for Medicare in 2025 would have needed to complete their Roth conversion by 2023, because the SSA looks at the return from two years ago. A warning for people who applied for Social Security benefits early: you will be automatically enrolled in Part A and Part B (you can decline Part B, but not Part A) and will face premium surcharges if you don’t plan accordingly.
Don’t forget taxes
There is a caveat with this strategy that you need to consider. When you convert to a Roth, you pay taxes on the money you move from your traditional 401(k) or IRA to a Roth IRA, which could push you into a higher tax bracket, which means more money going to Uncle Sam.
You have to weigh whether it’s worth it to pay more taxes for one year or pay higher Medicare premiums for several years. Typically, the tax hit is worth it, says Gates.
“You need to monitor the IRMAA threshold every year and look for those years and do a series of Roth conversions during those low tax years,” says Gates.
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