One of the most common questions that David gets is regarding what happens to the Medicare Part B premium if someone engages in a Power of Zero tax strategy. Are there unexpected consequences of shifting money from tax-deferred to tax-free?

When you do a Roth conversion, it doesn't count towards the income thresholds that determine whether you can do a traditional Roth IRA, but it does have an impact on your Part B Medicare premium as well as your prescription drug premium.

IRMAA stands for income-related monthly adjustment amount and it's basically a higher premium charged by Medicare Part B and D to individuals that reach certain thresholds. Medicare Part B helps pay for certain services like outpatient care and for the average American they pay 75% of the Part B premium.

If you are taking advantage of the 22% and 24% tax brackets you are going to move through two different thresholds when it comes to IRMAA and could be looking at an additional $2000 in costs per year when doing Roth conversions. At the top of the 24% tax bracket, it could be a little over $3000.

The thing to keep in mind is you're only paying this extra premium in the years that your income goes up due to the Roth conversions, it doesn't mean your premiums will stay that way forever. The question then becomes "is the increase in premium worth it?"

The simple way to find out is to do the math. If tax rates are going to double in the future, will those taxes be more or less than the two to three thousand dollars in increased premiums you're going to pay now?

You can also just compare the cost to the tax rate increases coming in 2026. You'll probably find that your tax rate will still be more than the increase in your premiums.

When you get money shifted at historically low tax rates to avoid a doubling of tax rates over time, but you have to pay a little bit extra, you're still much better off. Pay the higher drug premium now and avoid the tax freight train that is bearing down on your retirement.