How do Roth conversions affect Medicare IRMAA and taxable income for 2025 and future years?
Executive summary
Roth conversions increase your taxable income in the year of the conversion and therefore raise your MAGI — which Medicare uses on a two‑year lookback to set IRMAA surcharges — so a conversion in 2025 would affect Medicare premiums in 2027 (and 2025 premiums are based on 2023 MAGI) [1] [2]. The extra IRMAA cost can range from a few hundred to several thousand dollars a year depending on where MAGI lands; publishers calculate 2025 Part B yearly surcharges between about $888 and $5,326.80 and Part D from $164.40 to $1,029.60 across tiers [3].
1. How conversions change your taxable income — simple mechanics
A Roth conversion moves pre‑tax retirement dollars into a Roth account and the converted amount is treated as ordinary taxable income in the year you do the conversion; that raises your AGI/MAGI for that tax year and can push you into higher income tax brackets [1] [4]. Several planning pieces note explicitly that the conversion is included in MAGI and therefore can affect income‑sensitive items such as the taxation of Social Security and ACA subsidies as well as Medicare IRMAA [5] [6].
2. IRMAA’s two‑year lookback: timing is decisive
Medicare bases IRMAA surcharges on your MAGI from two years earlier, so what you report in 2025 determines IRMAA in 2027; conversely, 2025 IRMAA is determined by your 2023 income [1] [2]. Multiple advisers stress that the two‑year lag makes the timing of conversions crucial: a conversion timed too close to Medicare enrollment can cause a full year (or more) of higher Part B and D premiums [3] [7].
3. How large the premium hit can be — ranges and examples
Published analyses quantify the IRMAA effect: Kiplinger reports 2025 extra Part B costs ranging roughly $888–$5,326.80 annually and Part D surcharges about $164.40–$1,029.60 depending on MAGI tier [3]. Financial calculators and case studies show concrete examples — e.g., a $100k conversion could move a single filer from standard premiums into a higher IRMAA tier, raising Part B monthly costs materially; another example shows a $100k conversion added to $80k baseline MAGI raised Part B by $110.90/month or $1,330.80/year [8] [9].
4. Short‑term pain vs. long‑term gain — competing perspectives
Advisors portray a tradeoff: Roth conversions create immediate taxable income (and possible IRMAA pain two years later) but can reduce future taxable distributions and RMD‑driven income, lowering long‑term IRMAA exposure and taxable Social Security [10] [1] [11]. Some sources emphasize multi‑year modeling because interaction with SALT, NIIT, QBI and other provisions can push effective rates very high for certain taxpayers; others frame conversions as a prudent way to lock in current tax rates and simplify future income planning [12] [13].
5. Strategies planners recommend to manage IRMAA risk
Common tactics in the sources include staggering conversions over multiple years to avoid crossing IRMAA thresholds, completing conversions earlier than two years before Medicare enrollment, using deductions or charitable moves (QCDs) to offset conversion income, and running scenario models to compare added tax now versus future savings [7] [3] [14]. Practitioners warn that IRMAA bracket levels for future years aren’t published until late the prior year, which limits certainty when converting now for effects two years hence [15] [14].
6. Limits of available reporting and the decisions it leaves you with
Available sources consistently show the core facts — conversions count as taxable income, IRMAA uses a t‑2 MAGI lookback, and surcharges can be large — but they do not provide personalized thresholds for every future year nor definitive “right” conversion amounts for any individual; exact IRMAA brackets for 2027 (driven by 2025 income) won’t be set until authorities publish them [15] [14]. Sources also differ on scale and emphasis: some stress worst‑case high‑net‑worth traps [12], others present conversion ladders and modest examples [8] [11].
Actionable takeaway: model the conversion’s effect on your 2025 AGI/MAGI, project which IRMAA tier that would create in 2027 using current bracket examples, and weigh the one‑time higher premiums plus immediate tax against the long‑term benefit of tax‑free Roth growth and lower future IRMAA exposure; consult a tax pro because the interaction with SALT, NIIT, QBI and ACA subsidies can materially change outcomes [3] [12] [6].