Ask Liz Weston

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IRMAA

Q&A: What’s the most tax efficient way to donate your RMD?

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Dear Liz: My wife and I are in our 70s and receive required minimum distributions from IRAs. We make our charitable contributions out of our RMDs. We have considered a donor advised fund. Which vehicle provides the best tax savings?

Answer: You would typically get the most tax benefit from qualified charitable distributions, which allow people 70½ and older to contribute money to charities directly from their IRAs. QCDs can satisfy required minimum distributions without increasing your adjusted gross income. That, in turn, can mean less taxation of your Social Security benefits and may help you avoid or reduce income-related surcharges on your Medicare premiums.

QCDs must go directly from your IRA custodian to the charity. A check issued by the custodian and payable to the charity can qualify even if you deliver it. It’s not a QCD if you receive the distribution and then pay the charity yourself.

Donor-advised funds work differently. You contribute cash or securities to the fund and may qualify for a tax deduction if you itemize. The contributions can grow tax-free until you direct the fund to make grants to eligible charities, potentially years later.

You can’t make QCDs to donor-advised funds, but these can be useful if you want to make several years’ worth of charitable contributions at once or donate appreciated securities. Donating those investments rather than selling them can avoid capital gains taxes.

For annual charitable giving from your IRAs, however, QCDs are likely the better choice. Talk to your tax pro about how to make sure your donations meet the QCD rules.

Q&A: Can you tap your equity without triggering capital gains?

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Dear Liz: I know from personal experience after selling a longtime residence that tax return information is shared with the Social Security Administration. If the two-year look-back shows high enough modified adjusted gross income, Medicare premiums can increase significantly. There are appeal options, but a one-time home sale doesn’t necessarily qualify.

Should the couple consider a home equity line of credit to generate funds without triggering taxes?

Answer: That’s one option a financial planner might suggest, although HELOCs typically have variable interest rates and require monthly payments, which can burden retirees.

Another possibility is a reverse mortgage, which generally costs more but doesn’t require monthly loan payments. Interest and fees increase the loan balance, reducing equity available for future needs. Borrowers must continue paying property taxes, insurance and maintenance, and the loan generally comes due when they sell or permanently leave the home.

But again, taxes are just one factor. The planner can help them sort through all their options to find one that best fits their goals and needs.

Q&A: Can you convert an RMD to a Roth IRA?

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Dear Liz: I’m supposed to start required minimum distributions soon. Can I deposit my annual distribution into a Roth IRA? I understand that I have to pay taxes on the RMD, but if I can put it in a Roth, I would guess I don’t have to pay future capital gains taxes. I am retired and not working, so I wasn’t sure whether I can contribute to a Roth IRA.

Answer: You can’t. Contributions to IRAs, including traditional and Roth versions, require you to have earned income at least equal to the amount you’re contributing. Contributions are also limited to a certain dollar amount. In 2026, the limit is $7,500, plus $1,100 for people 50 and older.

There may be another way to get the tax-free growth you want. You can convert traditional retirement funds to a Roth IRA without earned income. Qualified Roth withdrawals are tax-free, and there are no RMDs during the original owner’s lifetime.

But late-in-life conversions can be tricky. Not only are conversions typically taxable, but they can temporarily raise Medicare premiums, subject more of your Social Security benefits to tax and push you into a higher bracket. You should consult a tax pro before converting.

Keep in mind that you can’t convert the RMD itself. You must take your required distribution for the year before converting additional money.

Q&A: Roth IRA conversions can benefit your heirs—but at a cost

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Dear Liz: I have been reading the questions about converting an IRA to a Roth and want to know how it might apply to my situation. I have been getting my required minimum distributions for a while, and I have been paying the surcharges on Medicare because of my higher income. Would it still be worth it to convert to a Roth? My children have very good income so inheriting my IRA and paying the taxes on that will probably be a burden. Thoughts?

Answer: A Roth IRA is a wonderful asset to inherit. Beneficiaries typically must empty the account within 10 years, but the withdrawals are entirely tax free.

That generosity comes at a cost, of course. You’d have to pay the taxes on any amounts you convert from your IRA, and the conversions could trigger even higher Medicare premiums. A tax pro can guide you about whether conversions make sense as well as how to do them: gradually over time or all at once.

Got a question about money? You can submit it here.

Q&A: Should I consider Roth conversions now or after I retire?

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Dear Liz: My husband and I both waited until age 70 to start Social Security. I will be 72 in September and am considering retirement. My husband is retired, 74, and taking required minimum distributions (RMDs). We have always tried to maximize contributions to our pre-tax retirement accounts and are now realizing the downside as we pay taxes on those mandatory withdrawals. Should I consider Roth conversions now or after I retire? I realize I will need to pay taxes on those conversions, but would it be best to do that when my income is lower? I am thinking about my kids and their future.

Answer: Late-in-life Roth conversions can be tricky. The amount you convert is removed from RMD calculations, lowering future tax bills. But the conversion is added to your current taxable income, potentially making more of your Social Security taxable and temporarily raising your Medicare premiums (thanks to income-related monthly adjustment amounts or IRMAA) in addition to generating a big tax bill.

Theoretically, a conversion could still make sense if your current tax rate is lower than the one you’ll have once you start required minimum distributions at 73. The case for conversion is strengthened if you want to pass this money to your kids. They likely would have to empty any inherited retirement account within 10 years, and they could be in their peak earning (and tax-paying) years when they do so. By converting now, you would in effect be paying the tax bill for them, perhaps at a lower rate than they might face, and allowing them to inherit the money tax-free.

A tax pro can help you with the calculations so you’ll understand the financial impact of a conversion. Then you can make an informed decision about whether to proceed.

Q&A: How do I avoid a Medicare surcharge?

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Dear Liz: I will be applying for Medicare next year. Last year I received an inheritance, and also sold a second home which increased our taxable income for the year. I once read that there is a form that needs to be completed to let Medicare know that this is only a one-time occurrence. However, my tax advisor said that there is no need to let Medicare know and he had not heard of any such form. I feel he does not understand that the higher income might affect our Medicare premiums. My understanding is that if I don’t submit the form, my Medicare payment will be a lot higher than expected. Can you suggest what I should do?

Answer: There is such a form, but it’s unlikely to help in your situation.

Medicare premiums are based on your income from two years earlier, as shown on your tax returns. People with higher incomes face “income related monthly adjustment amounts” (IRMAA) that can substantially increase their Medicare Part B and Part D premiums. (Part B covers doctor’s visits and Part D covers prescriptions.)

Form SSA-44 is designed to help people whose income has taken a hit because of major life changes, such as retirement, divorce or the death of a spouse. It’s not designed to spare people who had taxable windfalls, such as capital gains from a property sale.

Inheritances generally aren’t taxable events, however, with a few exceptions. If you inherit someone’s IRA, for example, you generally must start withdrawals which are typically taxable. Otherwise, inherited money and assets typically don’t show up on your tax returns or affect your Medicare premiums.