The 401(k) to Roth IRA Rollover That Lets Retirees Pay Zero Taxes on Their Medicare Premiums

Medicare’s IRMAA surcharge turns Roth conversion timing into a premium management tool, and retirees with large traditional 401(k) balances face the highest stakes. A couple in their late 60s with $1.4 million in a traditional 401(k) asked whether they should do Roth conversions now that they’re both on Medicare, worried that conversions could spike their premiums. They were right to worry, but done carefully, those same conversions keep Medicare premiums at the base rate for the rest of their lives.

The IRMAA Surcharge on Medicare Premiums

IRMAA (Income-Related Monthly Adjustment Amount) is a Medicare surcharge applied to Part B and Part D premiums when modified adjusted gross income exceeds certain thresholds. For 2026, the first IRMAA tier begins at $109,000 for single filers and $218,000 for married filing jointly. The standard Part B premium is $202.90 per month. Cross that threshold, and the surcharge adds $81.20 per person per month at Tier 1, rising to $487.00 per person per month at the highest tier.

In annual dollars, that Tier 1 surcharge is $1,148 per person, or $2,297 per couple, combining Part B and Part D adjustments. A couple at Tier 3 (MAGI between $342,001 and $410,000) pays $9,240 per year. The two-year lookback means a 401(k) withdrawal decision made today affects Medicare premiums two years from now, a connection that is easy to miss in standard retirement planning.

The Two-Year Lookback Window

IRMAA uses a two-year lookback: 2026 Medicare premiums are based on 2024 MAGI. A Roth conversion executed in 2024 shows up in 2026 premiums. A conversion in 2026 affects 2028 premiums. This creates a planning horizon most retirees ignore.

A couple converting $250,000 in a single year may push 2024 MAGI to $280,000, landing them in Tier 2 for 2026 and paying $5,772 per year in IRMAA surcharges as a couple. Spread the same $250,000 conversion across three years, staying below the $218,000 joint MAGI threshold for all three years, and they may pay zero IRMAA surcharges in each corresponding premium year. The timing and sizing of the conversion determine whether IRMAA surcharges apply.

The Gap Years Before Required Minimum Distributions

For retirees who stop working before RMDs begin, there is typically a window of low MAGI years. Under SECURE 2.0, anyone born in 1960 or later does not face required minimum distributions until age 75. A couple retiring at 65 with Social Security deferred and no pension has a decade where taxable income is largely discretionary. That window is where systematic Roth conversions, sized to stay below the IRMAA threshold, pay the most.

Consider a couple with $1.4 million in a traditional 401(k) who retire at 65 with $40,000 in other income. The 2026 joint IRMAA threshold is $218,000, which means they have conversion room before triggering any surcharge. Converting at the top of the 22% bracket, which covers taxable income up to $211,400 for married filing jointly, they can move meaningful amounts out of the traditional account each year, paying tax now at a controlled rate rather than at the potentially higher effective rate that arrives when RMDs stack on top of Social Security.

A large traditional 401(k) left unconverted can grow substantially by age 75, at which point RMDs stack on top of Social Security income and almost certainly trigger IRMAA. Converting $100,000 to $150,000 per year during the gap years substantially shrinks the future RMD balance.

Roth Funds as the IRMAA Pressure Valve

Once conversions are complete and funds sit in a Roth IRA, qualified withdrawals are tax-free and do not count toward MAGI. In retirement, when income from Social Security, a pension, or other sources pushes MAGI close to the IRMAA threshold, Roth withdrawals can cover additional spending without increasing MAGI. The Medicare premium remains at the base rate of $202.90 per month, regardless of how much is distributed from the Roth account.

For income generation within the Roth, Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD | SCHD Price Prediction) currently yields roughly 3.5% (3.46% to be exact), producing tax-free income without affecting MAGI. Dividends generated inside a Roth IRA never appear on a tax return and never count toward an IRMAA calculation.

Three Steps to Take Now

1. Pull your 2024 tax return and calculate your 2024 MAGI. If it exceeded $218,000 for joint filers, your 2026 Medicare premiums already reflect an IRMAA surcharge. Check your Medicare statement to confirm the tier. This tells you whether the damage is already done for the current year and helps calibrate conversion room going forward.
2. Model each year’s conversion as a separate MAGI calculation. Every dollar of a Roth conversion counts as ordinary income in the year it is executed. Capital gain distributions, interest income, and Social Security benefits (up to 85%) all count toward MAGI. Build a year-by-year projection before executing any conversion to avoid crossing a tier boundary.
3. If the combined income from all sources already sits within $10,000 of the $109,000 single or $218,000 joint IRMAA threshold, the annual surcharge risk alone justifies a session with a fee-only advisor who specializes in retirement tax planning. The figures at this income level are precise enough that a single miscalculated conversion year can cost more in premium surcharges than the advisor’s fee.