We learned three important things in Parts 1 and 2 of this blog post regarding the potential impact of a Roth IRA conversion on one's Medicare Part B premium:
- 1. The amount of income from the conversion can increase one's Medicare Part B annual premium by more than $3,000 if single or more than $6,000 if married and both individuals are eligible for Medicare.
- The premium increase, if there is one, will occur two years after the year in which the income from the conversion is included on one's income tax return.
- Assuming a 2010 conversion, the premium increase, if there is one, will occur in 2013 and 2014 if the "Default" method is used to report the conversion or in 2012 if the "Election" method is used.
To illustrate, let's assume that you're married and you're both eligible for Medicare, your 2008 Social Security Administration modified adjusted gross income ("SSA MAGI") was $165,000, and your Medicare Part B premiums are being withheld from your Social Security checks. Per last week's post, each of your 2010 monthly Medicare Part B premiums would be $96.40. For both of you, this would be $192.80 per month, or $2,313.60 per year. Let's further assume that your total 2010 Roth IRA conversion income was $540,000 and there have been no other changes to your income since 2008.
Assuming that you went with the default of reporting 50% of your Roth IRA conversion income in 2011 and 50% in 2012, your 2013 and 2014 MAGI would be $435,000 ($165,000 + 50% of $540,000), placing you in the top Medicare Part B premium level per the table in Part 1 of this post (joint return with income above $428,000). Let's assume that you instead elected to report 100% of your Roth IRA conversion income on your 2010 income tax return. In this case, your 2012 MAGI would be $705,000 ($165,000 + $540,000) and your 2013 and 2014 MAGI would revert to $165,000.
How much would your Medicare Part B premium be over the next several years? As stated above, it depends upon the year(s) in which the income from your 2010 Roth IRA conversion is reported on your income tax returns. The following table shows the amount of a married couple's Medicare Part B 2010 – 2015 annual premiums unadjusted for future premium increases, assuming base MAGI of $165,000 and 2010 Roth IRA conversion income of $540,000:
|
Year |
Roth Conversion Income Reported 2011 and 2012 |
Roth Conversion Income Reported 2010 |
|
2010 |
$2,313.60 |
$2,313.60 |
|
2011 |
$2,313.60 |
$2,313.60 |
|
2012 |
$2,313.60 |
$8,486.40 |
|
2013 |
$8,486.40 |
$2,313.60 |
|
2014 |
$8,486.40 |
$2,313.60 |
|
2015 |
$2,313.60 |
$2,313.60 |
While the amount of the 2010 Roth IRA conversion of $540,000 used in the above example is on the high side, it drives home the point that potential increases in Medicare Part B premiums need to be considered in a Roth IRA conversion analysis for Medicare-eligible individuals. Furthermore, if you do a Roth IRA conversion in 2010, it could increase your Medicare Part B premium amount for two years by more than $3,000 if single and by more than $6,000 if married and both individuals are eligible for Medicare.
