Will Converting $500k to a Roth IRA Affect My Medicare Premiums?

Medicare premiums are based on taxable income and a sudden increase can raise your costs. So if you are considering a Roth conversion as part of a long-term strategy to lower retirement taxes, this could raise your premiums in the year after the conversion. However, you should also note that the increase is temporary and your premiums will fall once your income returns to its usual level. To show how your Medicare costs can go up, let’s break down an example of a $500,000 conversion from a 401(k) to a Roth IRA. A financial advisor can help you structure this type of conversion to manage both taxes and Medicare costs.

Medicare is split into four main parts: A, B, C and D. Each part covers different services and comes with its own cost structure.

• Part A: Hospital insurance, covering inpatient hospital stays, skilled nursing facility care, hospice care and some home health services.
• Part B: Medical insurance, covering doctor visits, outpatient care, preventive services and durable medical equipment.
• Part C: Medicare Advantage, private plans that bundle Part A and Part B, often with extra benefits like dental or vision.
• Part D: Prescription drug coverage, applying to outpatient medications filled at a pharmacy.

Like other forms of health coverage, Medicare involves different types of out-of-pocket costs:

• Premiums: Monthly payments required for coverage (most people pay no premium for Part A if they worked enough quarters, but premiums apply for Part B, Part D and most Part C plans).
• Deductibles: What you pay before coverage begins (applies to Part A, Part B and most drug plans).
• Copayments: A set dollar amount for certain services or prescriptions (common under Part D and Medicare Advantage).
• Coinsurance: A percentage of the cost you pay after meeting a deductible (for example, Part B typically requires 20% coinsurance on covered services).

Not every part of Medicare applies all of these costs. The amounts also vary depending on your income, the plan you choose and the services you use.

The four Medicare programs each have their own set of rules around monthly premiums. Several use a system called Income Related Monthly Adjustment Amount (IRMAA) to determine your premiums each year. This is an elaborate way of saying that the plan’s premiums can scale with income. Premiums break down as follows¹:

There are no premiums for most Medicare Part A plans. Most Americans receive this coverage for free. This applies to anyone who paid Medicare taxes for at least 10 years during their working life, or who meets other eligibility requirements. Medicare Part A does apply deductibles and other forms of copayment.

If you do not meet one of the program’s requirements, you may have to pay a base premium of either $285 (for one person) or $518 (for spouses) per month.

Medicare Part B does apply a standard monthly premium. This premium is set on a sliding scale based on your annual modified adjusted gross income. Untaxed income (such as from a Roth IRA) does not affect your Part B premiums. The Part B cost tiers are:

• Up to $106,000 single/$212,000 joint: $185 per month
• $106,001 – $133,000 single/$212,001 – $266,000 joint: $259 per month
• $133,001 – $167,000 single/$266,001 – $334,000 joint: $370 per month
• $167,001 – $200,000 single/$334,001 – $400,000 joint: $480.90 per month
• $200,001 – $500,000 single/$400,001 – $750,000 joint: $591.90 per month
• Above $500,000 single/Above $750,000 joint: $628.90 per month

So, for example, say that you have a combined taxable income of $133,000 per year as an individual. You would pay $259 per month in Medicare Part B premiums. Then, say that next year you increase your withdrawals to a taxable income of $140,000 per year. You would pay $370 per month in Part B premiums.

Medicare Part C does not have a fixed premium schedule. This program is a public/private partnership. If you choose to enroll in Medicare Part C, you sign up for a private health insurance plan that is partially subsidized by Medicare. This plan typically provides full health care coverage, including all of the services generally covered by Parts A, B and D.

The specific costs for Medicare Part C, including premiums and out-of-pocket spending, are set by the plan you sign up for. However, you must remain enrolled in Medicare Part B, including that program’s monthly premiums.

Medicare Part D has a variable premium schedule that can scale up depending on your income.

You do not have to enroll in Part D to continue receiving coverage under other parts of Medicare. If you do enroll in Medicare Part D, you will select the specific plan and coverage that you want. Your monthly premium will be based on that plan, but that premium can be adjusted up based on your income. The Part D cost tiers are:

• Up to $106,000 single/$212,000 joint: Plan Premium
• $106,001 – $133,000 single/$212,001 – $266,000 joint: Plan Premium + $13.70 per month
• $133,001 – $167,000 single/$266,001 – $334,000 joint: Plan Premium + $35.30 per month
• $167,001 – $200,000 single/$334,001 – $400,000 joint: Plan Premium + $57 per month
• $200,001 – $500,000 single/$400,001 – $750,000 joint: Plan Premium + $78.60 per month
• Above $500,000 single/Above $750,000 joint: Plan Premium + $85.80 per month

As always, these costs are per-person in the household. So, for example, say you are a married couple with a household income of $280,000 per year. You would pay your Part D plan premiums, plus an additional $70.60 ($35.30 * 2) per month.

Medicare premiums are based on your modified adjusted gross income (MAGI). MAGI starts with your adjusted gross income, which is your taxable income. It adds certain types of income, such as tax-exempt interest from municipal bonds, and removes some deductions, like student loan interest. Non-taxable Social Security benefits are not included. The result is your MAGI.

This is then applied on a two-year lookback, meaning that in any given year your Medicare premiums are based on your income from the last two years. For example, in 2025 you would pay premiums based on your taxable income from 2023. In 2026, you will pay premiums based on your taxable income from 2024.

The combined result of this system is that your premiums can swing from year-to-year, but on a time lag. If your income spikes in one year, two years later your premiums will jump as well. If your income falls back down to normal the next year, two years after that your premiums will drop too.

When it comes to a Roth conversion, this can create a powerful distortion effect. When you make a Roth conversion, you apply the entire amount converted to your taxable income for that year. This income spike will also lead to a jump in premiums.

So, for example, say that you have $150,000 in income in 2025. In 2026, you make a $100,000 Roth conversion, leading to a total taxable income of $250,000 (the $150,000 of income + the $100,000 converted). Then in 2027, you return to your ordinary $150,000 of income.

Your premiums would swing in response. As an individual, that pattern would lead you to paying $370 per month in 2027 (due to the $150,000 taxable income), then $591.90 per month in 2028 (due to the $250,000 taxable income), then back to $370 per month in 2029 (due to the return to a $150,000 taxable income).

So, would converting a $500,000 401(k) to a Roth IRA affect your Medicare premiums? Almost certainly. Unless you are in the top tier(s) of income, there is almost no way that you could effectively structure this conversion without affecting your Part B and Part D premiums. The exact amount, however, depends on your current income and how you choose to structure this conversion.

For example, say that you currently make $100,000 per year as an individual. You would pay $185 per month in Part B premiums and no additional Part D charges. You make a staggered Roth conversion, moving $100,000 per year from your 401(k) to your Roth IRA over five years (setting aside portfolio growth during that time).

This would move your taxable income up to $200,000 for each of those five years, which would increase your Medicare premiums to $480.90 per month for Part B and a +$57 per month charge for Part D. You would pay additional total costs of:

• $185 * 12 * 5 = $11,100 (Part B premiums ordinarily)
• $480.90 * 12 * 5 = $28,854 (Part B premiums for five years due to conversion)
• $57 *12 * 5 = $3,420 (Part D surcharge due to conversion)
• $28,854 + $3,420 = $32,274 (Total Medicare costs during conversion)
• $32,274 – $11,100 = $21,174 (Difference)

You would pay an additional $21,174 in total Medicare costs due to the increase in your taxable income during the conversion period.

A Roth conversion almost always increases Medicare premiums for at least a short period, since the converted amount counts as taxable income. The effect ends once the conversion year falls out of the two-year lookback. After conversion, qualified Roth IRA withdrawals no longer count toward income, which can help reduce premiums in the future. However, whether this lowers lifetime Medicare costs depends on your income, conversion strategy and tax situation.

Medicare premiums are based on your household income. For most households, making a Roth conversion will almost certainly spike your premiums by increasing your associated income. However, since Roth portfolio income does not count toward Medicare premiums, you might also see significant long-term benefits. 

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• Mandatory distributions from a tax-deferred retirement account can complicate your post-retirement tax planning. Use SmartAsset’s RMD calculator to see how much your required minimum distributions will be.

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