She Is 63 With $950,000 in a 401(k), and Medicare Is Already Looking at the Income That Could Boost Her Bill at 65
Converting a 401(k) to a Roth at 63 feels like a two-year head start before Medicare touches your premiums, but Medicare starts watching your income before coverage ever begins, and the timing mistake can cost more than the conversion saves.
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She is 63, has $950,000 in a pretax 401(k), and has decided this is the year to move a large chunk of it into a Roth. Her reasoning feels airtight. Medicare premiums do not start until 65, so she figures she has two free years to adjust her taxes before anyone at Medicare cares about her income.
She is a hypothetical retiree, built to show a common timing mistake. Medicare starts tracking income before coverage begins. The income she reports this year generally sets her premiums two years from now, so the conversion she is planning at 63 lands on her first Medicare bill.
Line Up the Tax Year Against the Premium Year
Medicare’s income-related surcharges, known as IRMAA, run on a two-year lag. Social Security pulls the tax return from two years earlier and uses it to price Part B and Part D premiums. A conversion completed in 2026 generally feeds the 2028 premium calculation, which is the year she turns 65.
The figure Medicare reads is modified adjusted gross income (MAGI). Every taxable dollar converted or withdrawn from the 401(k) enters adjusted gross income, and Medicare then adds back tax-exempt interest. Parking cash in municipal bonds does not move her off the radar.
Deductions offer no cover either. The standard deduction lowers taxable income and reduces the tax bill, but it comes off after adjusted gross income is already set. The enhanced senior deduction she becomes eligible for at 65 works the same way. It cuts her tax without touching the number Medicare uses.
She also cannot treat this year’s surcharge brackets as the ones that will apply in 2028. Those limits are adjusted annually, and the 2028 figures have yet to be published.
Lowering Future RMDs Can Pull a Medicare Bill Closer
The usual case for converting at 63 is sound. A $950,000 pretax balance keeps compounding until mandatory withdrawals begin, and those forced distributions can push her income higher in her 70s than she ever intended. Converting now can trade a larger future tax bill for a smaller one today.
The catch is that the present problem arrives faster than she expects. For scale, a single filer in 2026 pays no Part B income surcharge with modified adjusted gross income of $109,000 or less, and that 2026 determination generally looks back to 2024 income. A large conversion stacked on her other income can clear a line like that in a single year.
The income limit for her first Medicare year needs to be checked when it is published. Today’s line works as a planning proxy, as long as she leaves room for it to shift.
Size the Conversion With Both Bills on the Table
The real comparison has two columns. One holds the cost of converting: federal income tax this year, plus any Part B and Part D surcharge that shows up two years later. The other holds the payoff: tax-free growth, smaller required distributions, and a Roth that carries no minimum distribution requirement while the owner is alive.
If she has already claimed Social Security, the same conversion income can also pull more of her benefit into taxable income. That can make the federal tax bill larger than she expected, even before the Medicare surcharge arrives.
A surcharge does not automatically make the conversion a mistake. Each surcharge is tied to one year of income, so a single heavy conversion year affects a single premium year. If that conversion keeps her income lower for a decade of required distributions, paying it once can be a fair price (we listed IRMAA alongside the other premium traps retirees walk into in a free Medicare guide here). What she might want to avoid is drifting over a limit by a few thousand dollars with no plan, paying the surcharge for almost no extra converted value. Spreading conversions across several years, each sized to stop just below a bracket edge, usually beats one large year.
Coordinate the Conversion With Every Other Income Stream
Her conversion shares the same income line as everything else. Pension payments, dividends, capital gains, and any final paychecks all count toward the MAGI Medicare reads. The best conversion times tend to be the first full years after earned income stops.
Stopping work helps in a second way. Beneficiaries can use Form SSA-44 to request a lower surcharge after qualifying events such as retirement, reduced work hours, marriage, divorce or a spouse’s death. If her last working year raises the income Medicare sees, retiring can support a request to use more recent, lower income.
A voluntary conversion alone does not qualify her for relief. If she also retires or has another qualifying event, she can request a review, but any conversion income in the year Social Security uses still counts.
With roughly 10 weeks left in the year, her next step is clear. She should map expected 2026 income line by line, use today’s surcharge threshold as a planning estimate, and compare the cost of staying below it with the benefit of converting more. Medicare will read this year’s return either way, so the amount she converts should be a choice she makes on purpose.
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Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
