Roth Conversions & Medicare Premiums: Understanding the Impact

Many people are unaware that a Roth conversion can lead to an increase in Medicare premiums. The new health care reform means that money from a Roth conversion increases taxable income, which, in turn, leads to a higher surcharge for Medicare Part B. Medicare Part B premiums can and will adjust based on your level of income.

As of 2010, single filers face higher Medicare premiums when they have Adjusted Gross Incomes of $85k or more. Married filers with Adjusted Gross Incomes of $170k or more are charged higher premiums.

While these numbers may sound high, if you convert an IRA, you could easily reach and exceed this threshold. A large enough Roth conversion could lead to a Medicare premium increase of as much as $3k for single filers or $6k for a married couple.

Before you convert to a Roth IRA, you should consider the drawbacks of doing so. This could quickly lead to a higher premium for Medicare Part B. Along with this negative financial impact, a Roth conversion may increase the amount of taxable Social Security benefits. 

Knowing that a Roth conversion could increase your Medicare premiums may change your thoughts about doing so.