David starts the conversation by explaining what IRMAA is, if you should be worried about it when doing a Roth conversion, and whether there are ways around it.

David defines the acronym IRMAA, Income-Related Monthly Adjusted Amount. This is an additional charge you could be required to pay on your Medicare Part B premiums.

As your income goes up in retirement, your Medicare Part B premium increases with it.

David explains why standard deductions do not apply when calculating IRMAA.

What is the link between IRMAA and doing Roth conversions? Roth conversions are construed as part of your annual income in the IRMAA calculation.

David explains why you could do a Roth conversion before ever getting on Medicare and still end up paying that increased premium.

The IRS has a two-year look-back period when doing IRMAA calculations. So if you did a Roth conversion at age 63, for example, that would be included in the IRMAA income calculation at age 65 when you finally get on Medicare.

If Roth conversions could potentially cause IRMAA, should you avoid them altogether? 

According to David, the answer is no--and that's because of two reasons. 

First, if you don't do a Roth conversion, you could risk growing and compounding your IRA or 401K to the point where RMDs at 73 are so large that you could get hit with IRMAA every year for the rest of your life.

Secondly, tax rates will go up in the future. So you certainly don't want to forego a Roth conversion, only to pay much higher taxes on your IRA or 401k distributions down the road.

According to David, if you get enough Roth conversions done by the time you reach 63, you could avoid IRMAA altogether. Why? Because distributions from Roth IRA are not included in the IRMAA income formula.

By doing a Roth conversion and taking the IRMAA hit in the short term, you could put yourself in a position where you avoid IRMAA for the rest of your life and stay off the IRS's radar when it comes to Social Security taxation.

 

 

Mentioned in this episode: David’s upcoming book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

David's books: Power of Zero, Look Before You LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code

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