Key Takeaways
- Dave Ramsey told a widowed caller with more than $700,000 in a traditional IRA not to let Medicare’s income surcharge drive her Roth conversion.
- Medicare’s top Part B surcharge is $487.00 a month in 2026, or $5,844 for the year, and it’s set from the tax return of two years before.
- For a single filer with the caller’s $250,000 salary, converting all $700,000 in one year adds $250,196 of federal tax and $488.40 of Medicare surcharge.
- On a small conversion that pushes income just past one of Medicare’s lines, the surcharge can cost more than the tax.
If you’ve been holding off on a Roth conversion because you’re afraid of what it’ll do to your Medicare premiums, personal-finance radio host Dave Ramsey thinks you’re watching the wrong bill. And by the federal government’s own 2026 figures, he’s right, at least for anyone converting a big IRA.
A widow’s $700,000 decision
A widowed caller to The Ramsey Show on Nov. 5 brought the kind of problem plenty of people in their 60s would love to have. She’s 63 and was her husband’s caregiver for 14 of their 41 years of marriage. She still earns about $250,000 a year, and on one paycheck she built up “a little over $700,000” in a traditional IRA. She doesn’t need that money to live on, and she wanted to know whether to move it into a Roth, and how fast.
Ramsey told her to do nothing for six months to a year, then convert either all at once or over about three years. She asked what that would do to her Medicare premiums. A couple of minutes later he gave his verdict: “don’t make a decision based on Medicare because Medicare is not a big enough number to wag the tail on this dog.”
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Medicare bills you on your income from two years ago
Medicare charges higher earners a monthly surcharge, known as IRMAA, on top of the standard Part B premium, and sets it from the tax return of two years before. For a single filer in 2026, the surcharge by modified adjusted gross income runs like this, according to the Centers for Medicare & Medicaid Services:
- Above $109,000: $81.20 a month
- Above $137,000: $202.90
- Above $171,000: $324.60
- Above $205,000: $446.30
- $500,000 or more: $487.00
That top band costs $5,844 for the year ($487.00 times 12). Each year’s premium is set from one year’s return, so a single big conversion raises the bill for one year.
Ramsey had already guessed where the caller stands: “I’m kind of thinking if you’re at 250, you’re already hammered there too, aren’t you?” He’s right. A $250,000 income sits in the band from $205,000 to $500,000, which carries a $446.30 monthly surcharge whether she converts or not.
The tax bill is the big number
Her own return has a few wrinkles. This is her last year filing jointly, she expects to file as head of household after that, and New York and New York City take their own cut. So let’s run the federal numbers for a hypothetical single filer with the same $700,000 IRA, and the same $250,000 salary as her only other income, under 2026’s rules.
The salary alone, less the IRS’s $16,100 standard deduction, leaves $233,900 of taxable income and a federal tax bill of $51,304. Convert the whole IRA in the same year, and the $700,000 stacks on top of the salary: $22,325 taxed at 32%, $384,375 at 35% and the last $293,300 at 37%. That’s $250,196 of extra federal tax.
Now Medicare. The conversion lifts her income to $950,000 that year, which moves her from the $446.30 band to the $487.00 one. That’s $40.70 a month more, or $488.40 for the year it applies.
Even if the conversion alone triggered the full $5,844, it would come to about 2% of the tax.
Going slow saves a little, mostly on tax
Ramsey’s other option was to spread it over about three years, which puts $233,333 on top of her salary each year. That leaves her income at $483,333, under the $500,000 top line, so she pays no surcharge beyond what her salary already costs her. The conversion adds $80,997 of federal tax a year, or $242,991 over three years. That’s about $7,200 less than doing it all at once. Add the $488.40 of Medicare, and spreading it out is worth about $7,700, nearly all of it in tax.
Ramsey also told her to pay the tax from money outside the IRA, such as a brokerage account, so the whole balance makes it into the Roth. And once her salary stops, the same dollars would start in lower brackets and lower Medicare bands. That’s one more reason to take his advice and go slow.
Small conversions near a line are a different matter
Ramsey is right at her scale, but not at every one. Take a hypothetical single filer with $108,000 of income who converts $2,000, just enough to cross the $109,000 line. The $2,000 is taxed at 22%, or $440. The surcharge it sets off costs $974.40 for the year ($81.20 times 12), more than twice the tax.
The way I see it, anyone converting six figures should pick the plan that saves the most tax and let Medicare’s bill land where it lands. Anyone sitting just under a line should price the surcharge first.
Of course, these are 2026’s bands and rates. A conversion this year sets a premium billed in 2028, at whatever that year’s figures turn out to be. If you’re already on Medicare, next year’s surcharge notice comes with Social Security’s cost-of-living letter between now and year-end, so check which year’s return it used.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
