How Roth Conversions Affect ACA and IRMAA Subsidies

When planning a Roth conversion, it’s easy to focus only on the income tax impact. But if you’re on ACA health insurance or Medicare, the conversion can also trigger changes in your ACA subsidies and IRMAA surcharges.

In this example, we’ll quantify:

1. The tax you’ll pay for the Roth conversion.
2. The additional ACA premiums you’ll owe.
3. Any IRMAA surcharges that apply.

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Problem Setup

We compare two scenarios:

• Base Case – No Roth conversion.
• Conversion Case – Roth conversion of $65,000.

Our goal is to measure how much more we’ll pay in taxes and premiums in the conversion case compared to the base case.

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Base Income Scenario

Household

• John (65) – Medicare
• Jane (60) – ACA
• Location: New Jersey

Base income: $60,000

• $10,000 – 1099 income (Jane self-employment)
• $10,000 – Qualified dividends
• $10,000 – Long-term capital gains
• $30,000 – Pension (John)

ACA Premium Reference
To compute ACA premiums, we also need the SLCSP (Second Lowest Cost Silver Plan). Using the KFF Subsidy Calculator, we get:

ACA SLCSP = $12,877

Note: “Tax Input” fields have a sub-label: “Earned Income”, “Principal”, etc… if the income type you want to enter is not listed in one of the input fields then please read this blog post  and then add that income to one of the input fields of the same category

Base Case Tax Output:

• ACA Health Insurance: $3,445.01
• IRMAA (A + B + D): $2,220.00
• Total Tax: $2,408.81

Tip: In our tax calculator, scroll to the chart at the bottom and click [+] to add this tax point to the trace.

Then click the gear icon and select:
“ACA Health Insurance”, “IRMAA (A + B + D)”, and “Total Tax” to track them over the two tax scenarios.

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Roth Conversion Scenario

We add $65,000 in Roth conversion income by increasing the TIRA Withdrawal field from $30,000 to $95,000.

Conversion Case Tax Output:

• ACA Health Insurance: $10,625.00
• IRMAA (A + B + D): $2,220.00
• Total Tax: $12,724.68

Tip: Scroll to the chart and click [+] to add this point to the trace.

You can switch between input scenarios by double-clicking on any point in the chart.

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Quantifying the Roth Conversion “Cost”

Category	Conversion Case	Base Case	Additional Cost
ACA Health Insurance	$10,625.00	$3,445.01	$7,179.99
IRMAA (A + B + D)	$2,220.00	$2,220.00	$0.00
Total Tax	$12,724.68	$2,408.81	$10,315.87

Total Additional Cost:
$7,179.99 (ACA) + $10,315.87 (Tax) = $17,495.86

Effective Cost Percentage:
$17,495.86 ÷ $65,000 = 26.92%

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Notes:

• ACA subsidies are based on (t-1) ACA MAGI so next year ACA Premiums will increase by the above amount.
• IRMAA surcharges are based on (t-2) IRMAA MAGI so the year after next one your IRMAA premiums will increase by the above amount.
• ACA subsidy rules will change in 2026 and the amount will likely be higher than the one computed above.
• If the ROTH conversion is done when Jane is 64 and in the next year she switches to Medicare the ACA Premium increase will be avoided.

Key Takeaways

• ACA healthcare premiums can be increased significantly by Roth conversions, especially before Medicare eligibility.
• IRMAA surcharges may not always be affected, but when they are, they can add thousands to your annual costs.
• Always evaluate total impact of taxes plus lost subsidies before deciding on the conversion amount.

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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Consult with a qualified financial advisor for personalized guidance.