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IRMAA

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.

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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.

Q&A: Medicare premium increase offsets cost-of-living boost

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Dear Liz: My wife and I are well over 70 and receive Social Security. We pay for Medicare Part B as well as IRMAA (Income-Related Monthly Adjustment Amount) for Part B and Part D via deductions from our monthly checks. We just received our annual notice from the Social Security Administration of the 2.8% cost-of-living increase for 2026. At the same time, our Medicare deductions were increased such that we ended with a monthly $20 increase in Social Security for my wife and $80 for me. That hardly goes along with the sentence in the standard letter from the SSA that the COLA helps us keep up with the cost of living. Are we just lucky that our monthly checks from the government did not actually decrease?

Answer: In a word, yes.

The cost of healthcare and healthcare insurance typically rises faster than the general rate of inflation. Medicare costs haven’t increased as quickly as those for private insurance. However, it’s still not unusual for higher Medicare premiums to wipe out Social Security cost-of-living increases for the year.

Fortunately, you have other resources to help you cope with inflation. IRMAA is a Medicare surcharge that kicks in for people with modified adjusted gross incomes over $109,000 if single or $218,000 if married filing jointly. The surcharge is determined by your income tax return from two years ago, so your 2026 IRMAA is based on your 2024 filing.

Q&A: Approaching retirement? Don’t count on rules of thumb

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Dear Liz: I have a few questions about my income taxes during my upcoming retirement. I would like to know if doing a Roth IRA conversion will be worth it for me since I might be in a higher tax bracket when I retire. Is there a rule of thumb in regards to doing this conversion? I’m also getting considerable income from my tax-free municipal bond and money market fund. Will that income be taxable when I retire and will it count toward how the government calculates my Medicare premiums?

Answer: Rules of thumb can be incredibly helpful in many areas of personal finance. Guidelines such as “spend less than you earn” and “pay yourself first” apply to virtually everyone. Even more specific recommendations, such as the 50/30/20 budget, can apply to many if not most situations. (The 50/30/20 budget recommends limiting “must have” expenses to 50% of after-tax income, leaving 30% for wants and 20% for savings and extra debt repayment.)

As you enter retirement, though, you’ll be making decisions that may be irreversible. It can be much harder to rebound from mistakes and you’ll have fewer years to do so. That’s why it’s important to get individualized advice from pros you can trust.

Converting a regular retirement account to a Roth IRA can make sense if you expect to be in a higher tax bracket in retirement and can pay the taxes on the conversion without raiding the account. But the conversion also can trigger higher Medicare premiums.

The same is true for municipal bond interest. Muni bond interest typically avoids income tax, but will be included in Medicare premium calculations and may cause more of your Social Security benefit to be taxable as well.

A tax pro can advise you about these issues and offer strategies to lower your lifetime tax bills.

Q&A: Inherited IRA could increase tax bill and Medicare premiums

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Dear Liz: If someone inherits my retirement account, is there any way they can avoid having their Medicare premiums increased for one year?

Answer: A large-enough retirement account could affect their Medicare premiums for up to 10 years, not just one.

Normally inheritances aren’t taxable, but retirement accounts are the exception. Withdrawals from inherited retirement accounts are usually taxable as income, and most non-spouse inheritors must drain a retirement account within 10 years. Withdrawals from inherited Roth accounts aren’t taxable, but the accounts still must be drained by the inheritor within a decade.

If the inheritor is on Medicare, taxable withdrawals could boost income enough to increase their Medicare premiums, thanks to the income-related monthly adjustment amounts (IRMAA). This surcharge starts once modified adjusted gross income exceeds certain amounts, which in 2025 is $106,000 for single filers and $212,000 for married couples filing jointly.

Anyone who inherits a retirement plan should get advice from a tax pro, but that’s particularly important when withdrawals might affect tax brackets and Medicare premiums. The pro can help determine how quickly or slowly the money should be withdrawn to maximize how much the inheritor gets to keep.