On an episode of her Women & Money podcast devoted to the Roth five-year rule, Suze Orman highlighted something many savers overlook when planning for retirement: The balance shown on a traditional IRA or 401(k) statement is not necessarily the amount they will have available to spend.
“In comparison to traditional IRAs, what you see there, the numbers on the paper, doesn’t mean that’s what you get when you go to withdraw the money, because it will always be taxed to you as ordinary income at whatever tax bracket happens to be in effect at that time,” Orman explained.
But the income-tax bill may be only part of the cost. Taxable withdrawals from traditional retirement accounts can also increase the modified adjusted gross income Medicare uses to determine income-related surcharges on Part B and Part D premiums. Because Medicare generally looks at tax information from two years earlier, one large withdrawal or Roth conversion could lead to higher premiums later. Crossing an income threshold by even a small amount can move a retiree into the next surcharge bracket for the entire year.
That is where the Roth five-year rule becomes so important. Once the applicable requirements are satisfied, qualified Roth withdrawals are tax-free and generally do not increase the income Medicare uses to calculate those surcharges. Starting the five-year clock early could therefore give retirees more control over both their future tax bills and Medicare costs.
The Math Is Brutal
IRMAA, short for the income-related monthly adjustment amount, raises Medicare Part B and Part D costs when modified adjusted gross income exceeds set thresholds. Medicare generally looks back two years, so 2026 premiums are usually based on a beneficiary’s 2024 tax return. Traditional IRA and 401(k) withdrawals, Roth conversions, pensions and the taxable portion of Social Security can increase adjusted gross income. For IRMAA, MAGI is generally AGI plus tax-exempt interest. Qualified Roth withdrawals are excluded from gross income, which can make them valuable for retirees trying to manage both taxes and Medicare premiums.
What the Five-Year Rule Really Means
The Roth five-year rule is not quite as simple as saying every Roth account must merely be open for five years. For Roth IRA earnings to come out tax-free as a qualified distribution, the owner generally must be at least 59½ and five tax years must have passed since the first contribution to any Roth IRA. Roth 401(k) and similar workplace accounts have their own qualified-distribution rules. Conversions can also carry separate five-year penalty periods for people under 59½. Once a distribution is qualified, it does not enter gross income and ordinarily will not raise the MAGI Medicare uses for IRMAA. That distinction matters because contributions, conversions and earnings can each be treated differently.
A Traditional Withdrawal Can Trigger IRMAA
Consider a married couple, both 68, receiving $90,000 a year in Social Security and needing another $160,000 for spending. If the entire $160,000 comes from a traditional IRA, as much as 85% of their Social Security may become taxable. With no other income or tax-exempt interest, their IRMAA MAGI could reach roughly $236,500. That exceeds the 2026 first-tier threshold of $218,000 for joint filers. Each spouse’s Part B premium would rise from $202.90 to $284.10 per month, and each could owe an additional $14.50 monthly Part D surcharge, depending on coverage. Together, those Medicare increases could approach $2,297 for the year before counting the income tax generated by the withdrawal.
The Same Spending From a Roth Looks Different
Now assume the couple takes that same $160,000 from a Roth IRA and the withdrawal is fully qualified. The distribution is not included in gross income, so it does not push them toward an IRMAA bracket or cause more of their Social Security to become taxable. With Social Security as their only other income, their taxable benefits could be only about $5,350 under current federal rules. They would remain far below the 2026 joint IRMAA threshold. Compared with using the traditional IRA, the couple could avoid about $2,297 in annual Part B and Part D surcharges, while also potentially eliminating a much larger federal tax bill.
When Roth Conversions Do Not Make Sense
A Roth conversion is not automatically a winning move. The conversion creates taxable income in the year it is completed and can itself trigger higher Medicare premiums two years later. The decision should compare today’s marginal tax rate with the rate expected in retirement, while also accounting for IRMAA, state taxes, future required minimum distributions and the tax treatment of heirs. Paying tax at 24% today simply to avoid a likely 12% rate later may be a poor trade. Conversions are most attractive when they fill a relatively low bracket without creating a larger tax or benefit cost elsewhere. Retirees also need enough cash outside the IRA to pay the conversion tax without taking another taxable distribution.
The IRMAA Cliff Changes the Calculation
IRMAA deserves special attention because its brackets operate like steps rather than a smooth phase-in. Crossing a threshold by even one dollar can raise Medicare premiums for the entire year. In 2026, joint filers generally avoid IRMAA at MAGI of $218,000 or less, while the first surcharge tier begins above that amount. However, avoiding IRMAA alone does not prove a conversion is worthwhile. A retiree might pay thousands in conversion tax to avoid a smaller future surcharge. The better strategy is often a series of partial conversions sized around tax brackets, Medicare thresholds and expected future withdrawals.
What to Do This Week
First, confirm whether you already have a funded Roth IRA and identify the tax year in which its five-year clock began. Merely opening an empty account does not start the clock; an eligible contribution or conversion generally does. Next, review your latest Form 1040, especially adjusted gross income and tax-exempt interest, then compare the total with current IRMAA thresholds. Finally, model partial conversions during lower-income years, often after retirement but before required minimum distributions begin at age 73. Leave room for capital gains, interest, dividends and other income that could unexpectedly push MAGI into the next tier.
Do Not Ignore the Workplace Roth Option
Workers with access to a Roth 401(k) can direct new contributions there instead of converting existing pretax savings all at once. That spreads the tax cost across working years and may build a source of qualified, tax-free retirement income. Starting in 2026, many employees age 50 or older whose prior-year FICA wages from the same employer exceeded $150,000 must make catch-up contributions on a Roth basis when their plan permits catch-ups. That rule does not force regular contributions into Roth, and it does not mean Roth is best for everyone, but it makes understanding the five-year rules more important than ever.
Start the Clock, but Plan the Taxes
Orman’s larger point is sound: tax diversification can give retirees more control over what appears on their tax return. Traditional withdrawals may increase ordinary income, make more Social Security taxable and raise Medicare premiums, while qualified Roth withdrawals generally avoid all three effects. Still, the goal is not to move every dollar into Roth at any cost. It is to create enough flexibility to choose the most efficient account each year. Starting a valid Roth IRA five-year clock early can preserve that option, but conversion amounts should be planned carefully with current tax brackets and future Medicare exposure in mind.
The image featured at the top of this post is © MariaDubova from Getty Images and c-George from Getty Images Pro.