Managing Roth Conversions with IRMAA in Virginia. A Practical Guide

For retirees with significant traditional IRA balances and unclaimed Social Security benefits, the intersection of Roth conversions, Medicare IRMAA, and estate planning presents both opportunities and challenges. As one potential client noted, they need “someone at your firm personally handles Roth conversion/RMD/Medicare IRMAA planning for clients in this situation.” This guide addresses the specific planning needs of high-net-worth retirees in Virginia.

Understanding Roth Conversions

A Roth conversion involves moving funds from a traditional IRA to a Roth IRA, paying ordinary income tax on the converted amount. The benefit? Once in the Roth, the money grows tax-free and can be withdrawn tax-free in retirement. For retirees with $1.8 million in traditional IRAs, the question is not whether to convert—but how much and when.

The Optimal Conversion Strategy

The optimal conversion strategy depends on three factors: current tax bracket, expected future tax bracket, and the impact on Medicare premiums. For most retirees, the ideal approach is to fill the 12% federal tax bracket each year during the conversion window (after retirement but before RMDs begin). For a single filer in 2026, that means converting enough to bring taxable income to the top of the 12% bracket, which is $48,475 .

However, the Medicare IRMAA threshold creates an additional consideration. Going even $1 over the first IRMAA tier ($109,000 for single filers, $218,000 for married filers) can trigger an additional premium of approximately $888 per person per year . This means conversions must be carefully calibrated to avoid crossing the IRMAA cliff while maximizing tax bracket utilization.

Tax-Free Growth and Estate Planning

The long-term benefit of Roth conversions extends beyond the retiree’s lifetime. Roth IRAs are not subject to RMDs during the owner’s lifetime, and heirs can inherit Roth IRAs tax-free—provided they follow the 10-year distribution rule for non-spouse beneficiaries . For retirees concerned about the tax impact on heirs, Roth conversions can substantially increase after-tax wealth passed to the next generation.

Medicare IRMAA: The Hidden Tax on Retirement Income

IRMAA is an income-based surcharge added to Medicare Part B (medical insurance) and Medicare Part D (prescription drug coverage) premiums . The surcharge applies when modified adjusted gross income (MAGI) exceeds certain thresholds. For 2026, the thresholds are:

For 2026, there are five surcharge tiers. The surcharges range from $1,148 to $6,936 per person per year for Part B and Part D combined . The highest tier begins at $500,000 for single filers or $750,000 for married filing jointly .

The Two-Year Lookback

IRMAA for a given year is generally based on your MAGI from two years before . This means income decisions made in 2026 will affect Medicare premiums in 2028 . For retirees planning Roth conversions, this timing creates a planning window: conversions can be scheduled in years when income is below IRMAA thresholds, or the tax impact of crossing a threshold can be weighed against the long-term benefits of the conversion.

The Widow’s Trap

When a spouse dies, the surviving spouse files as Single, where IRMAA brackets are roughly half the married filing jointly thresholds. A couple comfortably in Tier 1 as MFJ filers can suddenly land in Tier 3 as a single filer with no actual change in income . This is a critical consideration for estate planning, as the tax impact on the surviving spouse can be significant.

Virginia Tax Considerations for Retirees

For Virginia residents, the tax treatment of retirement income has three key elements:

Social Security Exemption

Social Security benefits are fully exempt from Virginia income tax . This means the portion of Social Security that is taxable federally is subtracted on the Virginia return, effectively eliminating state tax on Social Security benefits.

Age Deduction Phase-Out

The Virginia age deduction provides up to $12,000 per person for taxpayers aged 65 and older . However, the deduction is reduced dollar-for-dollar by adjusted federal AGI above $50,000 for single filers and $75,000 for married filers . This creates a “cliff” effect similar to IRMAA: managing income around these thresholds can preserve thousands of dollars of deduction.

Pension and IRA Taxation

Most other retirement income—including pensions, 401(k) distributions, and IRA withdrawals—is taxable at Virginia’s graduated rates, which top out at 5.75% . Roth distributions that are tax-free federally remain tax-free in Virginia .

Rental Property Tax Strategies

For retirees with rental properties, depreciation is a powerful tool for reducing taxable income. A cost segregation study can accelerate depreciation deductions, potentially saving tens of thousands of dollars in a single year . Under the OBBBA, 100% bonus depreciation has been restored for qualified property placed in service after January 19, 2025 .

Rental Property Example

For a residential rental property with a $800,000 purchase price, the annual depreciation without a cost segregation study would be approximately $23,636 (based on a 27.5-year recovery period) . With a cost segregation study, 20-40% of the building value could be reclassified as 5-7 year property, creating significantly larger deductions in the early years of ownership.

How We Can Help

Developing a Roth conversion and IRMAA management strategy requires specialized expertise. At Nova Tax & Accounting Services , we work with clients to develop personalized strategies that integrate Roth conversions, IRMAA management, and Virginia tax planning.

Our approach includes evaluating conversion scenarios and projecting lifetime tax savings, managing income to stay below IRMAA thresholds while maximizing conversion benefits, planning for the Virginia age deduction phase-out, coordinating with estate planning attorneys to optimize wealth transfer, and monitoring two-year lookback timing.

Schedule your free consultation today to discuss your retirement tax planning needs.