Updated

Updated · 24/7 Wall St. · Jun 13

Retirees Can Cut 6-Figure Taxes With $130,000 Roth Conversions Before Age 73 RMDs

Updated

Updated · 24/7 Wall St. · Jun 13

Retirees Can Cut 6-Figure Taxes With $130,000 Roth Conversions Before Age 73 RMDs

Q: What hidden Medicare surcharges can turn a smart Roth conversion into a costly financial trap?

The hidden trap is Medicare’s IRMAA surcharge — the Income-Related Monthly Adjustment Amount added to Part B and Part D premiums when income crosses set thresholds. A Roth conversion counts as taxable income and raises modified adjusted gross income, or MAGI. That matters because Medicare looks back two years when setting premiums. So a conversion done in 2026 can raise Medicare costs in 2028, long after the tax move is made. This delay is what makes the surcharge easy to miss. The danger is that IRMAA works like a cliff, not a gradual phase-in. For married couples filing jointly, the first 2026 threshold starts at $218,001 of MAGI. Going over by even $1 can trigger the full surcharge for both spouses. Higher tiers create even larger jumps. That can wipe out part of the tax benefit of a Roth conversion, especially if the conversion was meant only to fill a lower tax bracket. The risk gets worse once Social Security starts. A conversion can make more of those benefits taxable and, combined with IRMAA, push the effective marginal cost of the extra conversion dollars toward 40% or more. The practical fix is to plan conversions against two ceilings, not one: the tax-bracket limit and the IRMAA threshold. Many advisers also leave a safety buffer below the IRMAA line and stop conversions in the year before Social Security begins.

3 articles · Updated · 24/7 Wall St. · Jun 13

$1 million to $2.5 million retirement portfolios can trim six figures from lifetime taxes by converting roughly $130,000 a year to Roth accounts during the low-income years before age 73.
A $1.4 million traditional 401(k) would trigger about $52,800 of required income at 73, which can make up to 85% of Social Security taxable and push households deeper into 22% or 24% brackets.
Medicare adds another risk because IRMAA surcharges use a two-year lookback; a large conversion at 71 can raise Part B and Part D premiums at 73, with higher tiers costing $300 to $400-plus per spouse monthly.
For 2026, married couples can use the 22% bracket ceiling of $211,400 and the $32,200 standard deduction to run a multi-year conversion ladder, potentially moving about $780,000 out of the future RMD base over six years.
Experts say the key move is to size conversions with a CPA late in the year, balancing lower known tax rates now against the later stack of RMDs, taxable benefits and Medicare premiums.