Medicare’s Hidden Cost: How a $120,000 Roth Conversion Added $2,194 to Future Premiums

A 63-year-old single retiree with light consulting income converted $120,000 from her traditional IRA into a Roth in 2024. Tax brackets were reasonable, Social Security had not started, and the window felt right. She paid the federal tax bill and moved on.

Then her 2026 Medicare paperwork arrived. The Part B and Part D figures were higher than anything she had budgeted for. By the time she added up the monthly surcharges across the year, the conversion had cost her an additional $2,194 she had never factored in. Forum threads overflow with similar stories: retirees who ran the income tax math carefully, felt confident, and then got blindsided by a Medicare bill two years later.

The two-year lookback that prices your Medicare premium

Medicare uses the Income-Related Monthly Adjustment Amount, or IRMAA, a surcharge on Part B and Part D premiums for retirees whose modified adjusted gross income (MAGI) exceeds a threshold. The timing is the trap: 2026 premiums are priced off the 2024 tax return. Income at 63 sets your premium at 65. Income at 64 sets your premium at 66.

For a single filer in 2026, the standard Part B premium is $202.90 per month. The first IRMAA tier kicks in above $109,000 of MAGI and runs to $137,000. The second tier, from $137,001 to $171,000, adds roughly $202.90 per month to Part B and another $37.50 to Part D.

Her 2024 MAGI is where it unravels. Add $20,000 of consulting income, $4,000 in dividends, and the $120,000 Roth conversion, and she lands at $144,000. That is roughly $7,000 past the Tier 1 ceiling and squarely into Tier 2. The marginal cost of those last few thousand dollars was the full second-tier surcharge for a year of Medicare, far more than a few extra cents of tax.

The federal income tax on her conversion was about $26,400 at the 22% bracket. The IRMAA hit added another $2,194, an effective surcharge of roughly 2% on the conversion. Nobody quotes that number in the Roth conversion playbooks.

What spreading the conversion would have done

If she had split the conversion into two pieces, $60,000 in 2024 and $60,000 in 2025, her 2024 MAGI would have landed near $84,000, well below the $109,000 Tier 1 threshold. No IRMAA surcharge in 2026. Same conversion, same long-term Roth balance, no Medicare penalty. Only the calendar changed.

The two years before Medicare enrollment are the trickiest window for Roth conversions. Earlier in retirement at age 60 or 61, a large conversion never touches Medicare premiums because the lookback has not started. Once you hit 63, every conversion dollar above the threshold buys a two-year-delayed premium hike. The window narrows quickly.

How this fits with the rest of her plan

The conversion itself was sound strategy. A Roth IRA carries no required minimum distributions (RMDs) during her lifetime, so dollars moved now will not force taxable withdrawals at age 73 that could push her back into IRMAA territory as Social Security and any pension kick in. The mistake was sizing. A smaller annual conversion repeated over several years accomplishes the same goal of shrinking the future RMD base without crossing any single year’s IRMAA tier.

One detail matters: paying the conversion tax from a taxable brokerage account, rather than from the IRA itself, preserves the full $120,000 inside the Roth. Using IRA money to pay the tax shrinks the amount that ever gets to grow tax-free.

What to think through before you convert

1. Run your projected MAGI for the conversion year against the current single or joint IRMAA thresholds. If a conversion pushes you a few thousand dollars over a line, trimming it is almost always cheaper than paying the surcharge.
2. If Medicare enrollment is within two years, treat IRMAA as a real line item in the conversion math. The hardest mistake to undo is the conversion already triggered in December when the tax year closes.

Every retiree’s numbers move differently. Pension timing, dividend yields, capital gains, and part-time income can each nudge MAGI across a threshold in ways a spreadsheet built in January may not catch by December. A conversation with a tax preparer in October, while there is still time to scale a conversion up or down, tends to be the single most valuable hour in the whole exercise.