Updated

Updated · AOL · Jul 31

AOL Urges Pre-Retirees to Use 5-Year IRA Window, Including $1,100 Catch-Up Contributions

Updated

Updated · AOL · Jul 31

AOL Urges Pre-Retirees to Use 5-Year IRA Window, Including $1,100 Catch-Up Contributions

Q: How might a hidden Medicare surcharge completely wipe out the tax savings from your recent Roth IRA conversion?

A Roth IRA conversion can erase its own tax benefit if it pushes your income over a Medicare IRMAA threshold. The converted amount is added to your modified adjusted gross income for that tax year, and Medicare uses that income from two years earlier to set Part B and Part D premiums. That creates a hidden cost many retirees miss. In 2026, IRMAA begins above $109,000 for single filers and $218,000 for married couples filing jointly, based on 2024 income. Crossing a threshold by even $1 can trigger a full-year premium jump. A married couple just under the line could move into the first surcharge tier and each pay Part B premiums of $284.10 instead of $202.90, plus a Part D surcharge of $14.50 a month. For two spouses, that can add roughly $2,300 a year or more, and higher brackets can cost several thousand dollars more. That extra Medicare bill can wipe out much of the expected gain from converting, especially if the conversion was small and intended only to save a modest amount in future taxes. It is even more damaging because IRMAA works like a cliff, not a gradual phase-in. The practical fix is to size conversions carefully. Many advisers recommend converting only enough each year to “fill” a chosen tax bracket without crossing the next IRMAA tier, especially in the lower-income years between retirement and the start of Social Security or required minimum distributions.

Q: Are you accidentally triggering a massive penalty by misunderstanding the latest 2026 required minimum distribution rules?

Yes — if you misunderstand the 2026 RMD rules, you could trigger a steep IRS penalty. For 2026, there is no major new RMD law, but a new group of retirees is affected: people born in 1953 generally must begin RMDs this year because the current starting age is 73 for those born from 1951 through 1959. For people born in 1960 or later, the RMD age is 75. The biggest mistake is assuming the age changed again in 2026. It did not. Your first RMD is generally due by April 1 of the year after you reach RMD age. But delaying it can create a tax problem, because you may have to take two RMDs in the same year — the delayed first one and the second one due by December 31 — which can increase income taxes, Medicare IRMAA surcharges, and the taxable share of Social Security. Missing an RMD or taking too little can lead to a 25% excise tax on the shortfall, reduced to 10% if corrected within the allowed period. That is still a significant penalty. Traditional IRAs, SEP IRAs, SIMPLE IRAs, and most 401(k)-type plans are subject to RMDs. Roth IRAs are not subject to lifetime RMDs for the original owner, and Roth 401(k)s also no longer require them. The safest move is to confirm your required start date, calculate the withdrawal using your Dec. 31 prior-year balance and the correct IRS life-expectancy table, and coordinate the timing with taxes, Medicare, and Social Security.

3 articles · Updated · AOL · Jul 31

Five years before retirement is the last practical window to rebalance IRA strategy, AOL said, urging savers to coordinate investments, contributions and withdrawals before taxes and market swings become harder to manage.
For 2026, people under 50 can contribute $7,500 to an IRA, while those 50 or older can add a $1,100 catch-up amount, making late-career high-earning years a key period to boost savings.
AOL also advised shifting gradually from stock-heavy portfolios toward more bonds and cash, rather than selling risk assets all at once, to reduce volatility near retirement.
Traditional IRA withdrawals are taxed as ordinary income and can stack with Social Security, pensions and part-time wages, potentially raising tax brackets and triggering Medicare IRMAA surcharges.
Roth conversions during that five-year stretch may help if income is temporarily lower, because Roth accounts allow tax-free withdrawals later and avoid required minimum distributions after retirement.