Retiring at 61 with $1.9 Million in Your 401(k)? You Have 4 Years to Convert Before Medicare Counts Your Income – But Only 2 Are Truly Free

Under the two-year lookback rule for IRMAA, age 63 is the real Medicare deadline. For those turning 63 this year, only 2026 and 2027 remain for meaningful large-scale Roth conversions. A married couple can move nearly half a million dollars into a Roth over two years at a blended tax rate in the teens, without triggering IRMAA income counting. Claiming Social Security at 62 while doing conversions, however, would push 85% of those benefits into taxable income, eroding the tax savings that make the Roth strategy worthwhile.

Roth conversions are a popular tax-avoidance tactic, particularly for those looking to reduce their future taxable income. By moving funds from a traditional IRA or 401(k) into a Roth IRA, you pay tax on the converted amount now, but you gain tax-free growth and withdrawals in retirement. Roth IRAs are also exempt from required minimum distributions (RMDs), offering greater flexibility later in life.

One frequently overlooked factor, though, is that a Roth conversion increases your taxable income for the year in which it occurs. For those already on Medicare or about to enroll, that extra income can push up premiums through the Income-Related Monthly Adjustment Amount (IRMAA). Consider a 61-year-old who walks away from a paycheck this year with $1.9 million accumulated in a 401(k). That creates a brief but valuable window. Before Medicare kicks in at 65, that individual has four years to perform Roth conversions – but only two of those years are truly “free.” After that, every extra dollar earned adds to the Medicare premium bill for the rest of retirement.

The mechanism at work is IRMAA’s two-year lookback – one of the costliest rules in retirement planning, and one most people never plan for.

Why 63 Is the Real Medicare Deadline

Medicare uses your modified adjusted gross income (MAGI) from two years prior to set your Part B and Part D premiums. If you turn 65 in 2030, your first year of Medicare premiums will be based on your 2028 tax return. That means your income at age 63 – and every year thereafter – goes into your Medicare premium record.

For a 61-year-old retiring this year, 2026 and 2027 are the only years in which large Roth IRA conversions can be made with zero Medicare impact. Conversions in 2028 and beyond will show up as higher premiums on your Social Security statement, and that surcharge adjusts annually based on the lookback year.

These premiums are not trivial. The standard Part B premium for 2026 is $202.90 per person per month. For married couples filing jointly with MAGI over $218,000, each spouse pays an extra $81.20 for Part B and $14.50 for Part D. Higher income brackets quickly escalate the cost, with top-tier couples (income above $750,000) paying $689.90 per month for Part B alone. IRMAA charges like a cliff, not a gradual slope – cross a threshold by even one dollar, and you owe the full surcharge.

What a 2026 Conversion Actually Costs

Take a married couple, both 61, retired now with no wage income. Under the 2026 tax brackets, joint filers hit the 24% rate once taxable income reaches $211,400, after the $32,200 standard deduction. That means they can withdraw about $243,000 from the 401(k) and land exactly at the top of the 22% bracket.

The tax bite on that conversion will be a blended rate in the teens, because the first $24,800 is taxed at 10%, the next chunk at 12%, and only income above $100,800 hits the 22% rate. If this couple did the same conversion in their 70s, with Social Security and RMDs in play, most of that income would fall into the 24% or 32% brackets. Paying 15% to 18% now to avoid 24% to 32% later is the whole point.

Run this strategy in both 2026 and 2027, and you can move nearly half a million dollars from pre-tax accounts into a Roth IRA before IRMAA starts watching. Every dollar converted permanently reduces the RMD that begins at age 75. The stretch between your last paycheck and your first required withdrawal may offer the lowest tax rates you will ever see – and that is exactly what the free Roth IRA window guide is all about.

Where to Park the Tax Money

Conversions require cash to pay the IRS, and pulling that money from the 401(k) defeats the purpose. A short-term Treasury ladder is the safest source of funds. With 10-year Treasury yields near 4.7% and short-term bills closely tracking that range, parking two years’ worth of conversion taxes in Treasuries earns real interest while you wait.

Social Security planning takes this a step further. The 2027 cost-of-living adjustment is projected near 3.1%, and for a healthy 61-year-old, delaying benefits until 70 remains the highest-return strategy. Delaying also keeps your provisional income lower during the conversion window, freeing up more of the 12% and 22% brackets for Roth IRA conversions.

Three Things to Do Before December 31

Build a two-year conversion ladder for 2026 and 2027. Target the 22% bracket in both years. Confirm that your 2028 conversion amount stays below the $218,000 joint IRMAA threshold, because 2028 income will determine your first Medicare premium.

Move two years of conversion tax money into Treasuries now. With 10-year yields near 4.7% and short-term rates following suit, a laddered Treasury approach covers the April tax payment without tapping 401(k) funds.

Decide on your Social Security start date before you begin conversions. If you claim at 62 and convert at the 22% bracket, 85% of those benefits typically become taxable, eroding the savings. Delaying past 65 keeps the conversion window tax-clean.

The four-year gap between retirement and Medicare looks generous – until you realize the IRMAA clock starts ticking at 63. Make the most of the first two years, or pay the surcharge for the rest of your life.