Is there a bad time to convert your Traditional IRA to a ROTH IRA?

First off, I’m not a financial advisor so this is not financial advice.

But it’s important to understand how a decision you make today impacts your Medicare premiums in the future.

IRMAA

Income Related Monthly Adjusted Amount is known as IRMAA.  Medicare looks at your income from 2 years ago to decide how much you should be paying for your Medicare Part B premium.

If Medicare considers your income high then you will pay more than the standard amount.  How much more?

Here’s the info for 2022:

If this info is dated, the current year info can be found here.

How this can impact you

Many people I work with already work with a financial advisor or CPA.  This is great because those things are not my expertise.

But Medicare usually isn’t their expertise.

I’ve had people retire early so their income is lower compared to when they were working.  They are given advice to convert money from their traditional retirement account to a Roth retirement account during this time period.

The issue this created was they converted enough that Medicare considers their income to be high. So now they pay more than the standard amount for Medicare part B.

For some people, this extra amount offsets the savings created by converting their IRA.

So now what?

The good news is Medicare looks at your income from 2 years prior.  And they re-evaluate your income every year.  So this year is 2022 and they look at your 2020 income.

But in January 2023 they will start using your 2021 income.

So your decision doesn’t impact you forever as far as Medicare is concerned.  But do you have any options other than just paying the extra premium?

Maybe.

Life Changing Event

Medicare does have a process for people that go through a life changing event.  I’ve got step by step instructions here but the key part is you ask Medicare to use a projection of your current year income instead of 2 years ago.

Medicare states you can only do this if you go through a life changing event.  They have a life changing event list that includes:

• Marriage
• Divorce/Annulment
• Death of your spouse
• Work Stoppage
• Work Reduction
• Loss of income-producing property
• Loss of pension income
• Employer settlement payment

Notice none of those would cover a conversion of a traditional retirement account to a Roth.

So if you are trying to navigate this Medicare maze, click the button below to schedule a time with me.  That way you’ll have a guide instead of trying to find a path forward on your own.