Roth conversions are one of the most powerful tax planning tools available to retirees and near-retirees. When implemented correctly, they can reduce lifetime taxes, increase after-tax wealth, and create more flexibility in retirement income planning.
But there’s a catch.
If Roth conversions are done without a full understanding of how Medicare premiums are calculated, they can unintentionally add thousands of dollars per year to your healthcare costs. Over the course of retirement, that mistake can cost tens of thousands of dollars—sometimes more—without providing any additional benefit.
This article walks through why that happens, how a well-intentioned strategy can go wrong, and how a small adjustment can materially improve long-term outcomes. The goal is not to discourage Roth conversions. The goal is to show you how to do them intelligently, with a full view of the tax system—not just one part of it.
The Common Assumption: “Lower Tax Brackets = Good Strategy”
Most people approach Roth conversions with a simple and logical framework:
“I want to convert pre-tax dollars at lower tax rates today so I don’t pay higher tax rates later.”
That’s sound logic.
To do this, many retirees look exclusively at federal ordinary income tax brackets, which currently range from 10% to 37%. The most common strategy is to “fill up” the lower brackets—often the 10%, 12%, or 22% brackets—before required minimum distributions (RMDs) begin.
On paper, this looks great. Converting at 22% today to avoid paying 24% or higher in the future can save substantial amounts in federal income tax.
The problem is that ordinary income tax brackets are not the only tax system at work.
The Overlooked Factor: Medicare IRMAA Surcharges
Medicare premiums are not flat for everyone. Higher-income retirees pay more through what are known as Income-Related Monthly Adjustment Amounts, or IRMAA surcharges.
These surcharges apply to Medicare Part B and Part D and are based on your income from two years prior, using a metric called Modified Adjusted Gross Income (MAGI).
For 2025, the key thresholds are as follows:
- Married filing jointly
- No IRMAA surcharge if MAGI is $212,000 or less
- Single filers
- No IRMAA surcharge if MAGI is $106,000 or less
Cross that threshold—even by one dollar—and you trigger additional monthly premiums for the entire year.
At the first IRMAA tier, those surcharges are approximately:
- $74 per month for Part B
- $13.70 per month for Part D
That’s nearly $1,050 per year per person, and it only goes up as income rises into higher tiers.
Where Most Strategies Break Down
Here’s where people get tripped up.
- Ordinary income tax brackets are based on taxable income
- Medicare IRMAA surcharges are based on modified adjusted gross income (MAGI)
Those are not the same thing.
MAGI is calculated before standard or itemized deductions. In practical terms, that means your MAGI is often $25,000–$30,000 higher than your taxable income for a married couple taking the standard deduction.
This creates a dangerous illusion.
A retiree might look at the tax tables and think:
“If I convert up to the top of the 22% tax bracket, I’ll still be under the Medicare threshold.”
In reality, converting up to that bracket often pushes MAGI over the IRMAA limit, triggering thousands of dollars in extra Medicare premiums.
A Realistic Case Study: When “Doing the Right Thing” Gets Expensive
Let’s look at an illustrative example using a hypothetical couple, Michael and Lisa.
They have accumulated significant savings in pre-tax accounts—Michael in a 401(k), Lisa in a traditional IRA. Like many retirees, they recognize that if they don’t take action, future RMDs could push them into higher tax brackets later in life.
So they decide to implement a Roth conversion strategy during the years between retirement and the start of Social Security and RMDs—when their taxable income is relatively low.
From a tax perspective, this is smart.
When modeled using ordinary income tax brackets alone, converting up to the 22% bracket results in:
- Hundreds of thousands of dollars less paid in federal income taxes
- Nearly $1 million in improved long-term tax-adjusted outcomes
At this point, most people would stop and declare success.
But there’s more to the story.
The Hidden Cost: Medicare Premiums Quietly Rising
When we overlay Medicare IRMAA rules on top of this strategy, something changes.
By converting all the way to the top of the 22% tax bracket, Michael and Lisa’s MAGI crosses the Medicare threshold. As a result:
- They unintentionally trigger IRMAA surcharges
- They pay thousands of dollars per year in additional Medicare premiums
- Those costs repeat annually for as long as income remains elevated
Over a full retirement, this seemingly small oversight can erase a meaningful portion of the tax savings they worked so hard to achieve.
A Small Adjustment With a Big Impact
Now let’s make one simple change.
Instead of converting all the way to the top of the 22% ordinary income tax bracket, we cap Roth conversions at the point just below the first IRMAA threshold.
The result?
- Ordinary income taxes remain low
- Medicare IRMAA surcharges are avoided
- Cash flow in early retirement improves
- Long-term tax-adjusted wealth increases further
In this case, the adjustment adds roughly $90,000 in additional tax-adjusted ending wealth—on top of what was already a strong strategy.
And just as importantly, it feels better. Less tax paid upfront. Fewer surprise costs later.
That’s what we mean by low-hanging fruit.
Why This Matters Even More Than It Appears
Roth conversions are powerful—but they are also tax-accelerating strategies. You’re choosing to recognize income sooner than you otherwise would.
That means every unnecessary dollar of income matters.
By coordinating Roth conversions with Medicare thresholds:
- You convert less
- You pay less tax
- You keep more after-tax wealth
- You reduce stress around healthcare costs
That’s a rare win-win.
Roth Conversions Don’t Exist in a Vacuum
To do this correctly, Roth conversions must be coordinated with three separate tax systems:
1. Ordinary Income Tax Brackets
The familiar 10%, 12%, 22%, 24%, and higher brackets.
2. Capital Gains and Qualified Dividend Brackets
Long-term capital gains are taxed at 0%, 15%, or 20%. Roth conversions can push investment income into higher brackets if not carefully managed.
3. Medicare IRMAA Brackets
Income thresholds that determine whether Medicare premiums increase—sometimes dramatically.
A decision made in one area ripples into the others. Ignoring that interaction is how good strategies become expensive ones.
The Bigger Picture: Getting the Strategy Right
Your retirement tax strategy may be the difference between:
- Paying thousands more than necessary every year, or
- Preserving hundreds of thousands of dollars over your lifetime
Roth conversions are not just about tax brackets today versus tomorrow. They’re about coordination—understanding how income decisions affect taxes, Medicare, Social Security taxation, and long-term wealth.
When you understand how each system interacts, you can make decisions that lead to the best possible outcomes—not just on paper, but in real life.
That’s what we focus on at Root Financial: helping retirees and pre-retirees see the entire picture, not just one line of the tax code.
Because when you get this right, the impact compounds for decades.
This article is for educational and informational purposes only and should not be construed as personalized investment, tax, or legal advice. It discusses general early-retirement tax concepts—such as ACA health-insurance subsidies, Roth conversions, tax-gain harvesting, RMDs, and Social Security/Medicare considerations—and is not a recommendation to take any specific action.
Tax and benefit rules change. Brackets, thresholds (including ACA subsidy eligibility, capital-gains bands, IRMAA surcharges), RMD ages, and deductions are subject to revision and can vary by state. Your filing status, other income, deductions, and residency may materially change outcomes. Always verify current rules and consult qualified professionals before acting.
Hypothetical case study. “John and Jane” are illustrative only and do not reflect any specific client. Projections and scenario analyses are estimates and not guarantees of future results.
Investing involves risk. Past performance is not indicative of future results. All investments can lose value, including loss of principal. Diversification and asset allocation do not ensure a profit or protect against loss.
Not tax or legal advice. Root Financial Partners, LLC (“Root Financial”) provides tax planning as part of its financial-planning services; we do not provide tax preparation services, represent clients before the IRS, or offer legal advice. Ideas discussed here—including but not limited to Roth conversions (including backdoor strategies), tax-gain or tax-loss harvesting, ACA subsidy planning, charitable strategies, estate-planning tactics, Social Security claiming strategies, and withdrawal sequencing—can trigger tax consequences or legal implications. Consult your CPA and/or attorney to evaluate suitability and compliance for your circumstances.
Suitability depends on your full picture. The appropriateness of any strategy depends on your income, age, health-insurance status, account types and cost basis, risk tolerance, time horizon, estate plan, and other factors. Nothing herein should be interpreted as a recommendation to adopt a particular tax position, make a specific investment, or change coverage.
Root Financial Partners, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. For additional information, please review our Form ADV and firm disclosures available upon request.