How 401(k) Withdrawals Can Increase Your Medicare Premiums

Pulling money from your 401(k) can come back to affect your Medicare costs two years later. Medicare applies an income-related monthly adjustment amount, or IRMAA, to Part B and Part D premiums when your modified adjusted gross income goes above certain limits. The timing matters: premiums are generally based on tax returns from two years earlier.

The notice may not arrive until long after the withdrawal has been spent on something like a car or home repairs. If you plan to take extra withdrawals or do a Roth conversion, it is worth considering the future Medicare bill as well. Here is what counts as income and how the surcharges are calculated.

Your 401(k) balance is not what triggers the charge

Simply having a large 401(k) does not automatically increase premiums. What matters is taking taxable money out of it.

Traditional 401(k) withdrawals usually count as income, including required minimum distributions. A withdrawal used for something like a new roof or a replacement car could push you into a higher bracket. Any nontaxable portion, such as a return of after-tax contributions, generally does not count toward income.

Medicare looks beyond your paycheck

For IRMAA, Social Security defines MAGI as adjusted gross income plus tax-exempt interest. That means municipal bond interest is included, even though it is usually exempt from federal income tax.

Your standard deduction does not lower this figure, and itemized deductions do not help either. If you are trying to see whether you are near a Medicare threshold, the taxable income number near the bottom of your return is not the right one to use.

The current surcharges can add up quickly

The standard Part B premium is $202.90 a month in 2026. Medicare uses six income brackets, including one with no surcharge. At the highest level, the added charge is $487 for Part B and $91 for Part D each month, on top of the regular premiums.

Roth conversions and investment gains can also count

Converting pretax retirement money into a Roth account usually creates taxable income in the year of the conversion. Even if the money stays in the Roth account, the conversion itself can raise your Medicare premiums.

Capital gains from selling investments or property may also increase income. When property is involved, the relevant figure is the taxable gain, not the full sale price. A qualified exclusion for the sale of a primary home may keep some or all of that gain out of the calculation.

One dollar over the line can mean a full year of surcharges

IRMAA works in tiers. Going over a threshold by even $1 can trigger the full next level, usually for all 12 months if you remain enrolled and your determination does not change.

For a married couple filing jointly, $218,000 in MAGI means no surcharge for the year in question. At $218,001, each spouse enrolled in both Part B and Part D owes an extra $95.70 a month. If both spouses have coverage all year and no adjustment applies, that adds up to $2,296.80 in extra premiums.

Future thresholds should be treated as estimates

CMS is expected to announce the official figures for the next year in November. Early projections place the first threshold at about $112,000 for single filers and $224,000 for joint filers, but those limits are not yet confirmed.

The tax year matters as much as the income amount. Income from the current year generally determines premiums two years later. Withdrawals or conversions made later would affect premiums even further out, for years whose thresholds are not yet known. Planning too close to an estimated cutoff leaves little room for surprises.

Smaller Roth conversions may help manage the impact

Spreading smaller conversions across several years can help avoid a large spike in income. Before deciding how much to convert, factor in other income, including required withdrawals and investment gains.

A surcharge does not automatically make a conversion the wrong move. The real question is whether the future tax benefits are worth the taxes and added Medicare premiums you would pay along the way.

Qualified charitable distributions can help if you qualify

If you are at least 70½ and already give to charity, a qualified charitable distribution may be useful. Eligible transfers go directly from your IRA to a qualified charity and are excluded from income, subject to annual limits and other rules.

A QCD can also cover part or all of your IRA required minimum distribution. It is not available directly from a 401(k), and withdrawing the money first and donating it afterward does not produce the same tax result.

Lower retirement income may open the door to relief

If retirement, fewer work hours, or the death of a spouse reduced your income, you can ask for a new determination using Form SSA-44. You will need to provide proof of the event and your lower income.

This is different from a formal appeal, which generally uses SSA-561 or Social Security's online process. A one-time withdrawal by itself is not a qualifying life-changing event. Check the letter's tax year and income figures before assuming the surcharge is unavoidable.

The bottom line

A large 401(k) withdrawal can cost more than the income tax due on it. It may also raise your Medicare premiums later, with a separate surcharge for each enrolled spouse. Before taking out extra money, check how much room you have before reaching the next income threshold.

This planning matters before Medicare enrollment as well. If you sign up at 65, income from the year you turned 63 generally affects your premiums. Seniors should include that future Medicare cost when deciding how much to withdraw or convert.

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