Doing a Roth Conversion in 2026? Beware This Pitfall.

There's a reason some people opt to save for retirement in a Roth IRA or 401(k). Even though Roth retirement plans don't give you an immediate tax break on your contributions, investment gains in a Roth are yours to enjoy tax-free.

Plus, come retirement, you have more flexibility with your money with a Roth IRA or 401(k). You don't have to take required minimum distributions, and you get to withdraw money from your retirement savings tax-free.

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If you missed the boat on contributing to a Roth account directly, or your income was too high to fund a Roth IRA, then you may be considering a Roth conversion this year. This allows you to move funds from a traditional retirement plan into a Roth to capture the aforementioned benefits.

But while it can certainly be advantageous to have money in a Roth account for retirement, you'll need to be careful in the course of doing a conversion. You may not realize it, but a Roth conversion could leave you with not just a large tax bill, but more expensive Medicare premiums down the line.

Don't set yourself up for Medicare surcharges

It's not really a secret that doing a Roth conversion triggers a tax bill the year you move those funds over. But what you may not realize is that if a Roth conversion raises your income above a certain level, you could face surcharges on your Medicare Part B and Part D premiums two years down the line.

Those surcharges are known as income-related monthly adjustment amounts, or IRMAAs. And while they don't affect most Medicare enrollees, they apply to single tax-filers this year with a modified adjusted gross income (MAGI) above $109,000 or married filers with a MAGI above $218,000.

As you can see, the income thresholds for IRMAAs aren't so large. So it's easy enough for a Roth conversion to propel you into IRMAA territory, making your Medicare premiums cost more.

Be careful when doing Roth conversions

Medicare is expensive enough without having surcharges tacked on. So if you're interested in doing a Roth conversion, proceed with caution.

Rather than do a large conversion this year, you may want to move money into a Roth in smaller increments over the course of several years. It's a good idea to work with a tax professional on the timing of your conversions to minimize the tax blow overall.

Generally, Roth conversions are a good thing to do in a year when your income has dropped. But do keep IRMAAs on your radar, even if you're convinced that now's the optimal time to move a whole bunch of money into a Roth account.

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