A Surprising Medicare Rule Could Raise Your Premiums Based on Your 401(k)

Taking money out of your 401(k) could raise your Medicare premiums two years later. Medicare adds an income-related monthly adjustment amount, or IRMAA, to Part B and Part D premiums once your modified adjusted gross income passes certain thresholds. The catch is the timing: 2026 premiums generally use your 2024 tax return, while 2027 premiums use your 2025 return.

By the time the letter arrives, you may have already spent that withdrawal on a car or home repairs. If extra withdrawals or a Roth conversion are part of your retirement plan this year, the future Medicare bill deserves a look, too. Here's what counts as income and how the surcharges add up.

Your 401(k) balance isn't the trigger

Having a large 401(k) doesn't automatically mean higher premiums. Taking taxable money out of it is what matters.

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

Medicare counts more than your paycheck

For IRMAA, Social Security defines MAGI as adjusted gross income plus tax-exempt interest. That means municipal bond interest counts, even though it generally escapes federal income tax.

Your standard deduction doesn't reduce this number. Neither do itemized deductions. If you're checking whether you're close to a Medicare threshold, the taxable income figure near the bottom of your return isn't the number to use.

The 2026 surcharges reach $578 a month

The standard Part B premium is $202.90 a month in 2026. There are six income brackets, including the bracket with no surcharge. The highest bracket adds $487 for Part B and $91 for Part D each month. These charges sit on top of your regular premiums.

Roth conversions and investment gains count, too

Moving pretax retirement money into a Roth account generally creates taxable income in the conversion year. Even if the money stays in your Roth account, the conversion could raise your Medicare premiums.

Realized capital gains from selling investments or property can also increase income. With property, the relevant amount is the taxable gain, not the sale price. An eligible main-home sale exclusion could keep some or all of that gain out of the calculation.

One extra dollar could mean a year of surcharges

IRMAA works in steps. Crossing a threshold by $1 triggers the full next tier, generally for all 12 months if you're enrolled throughout the year and your determination doesn't change.

For a couple filing jointly, $218,000 in 2024 MAGI means no 2026 surcharge. At $218,001, each spouse enrolled in both Part B and Part D owes an extra $95.70 a month. If both have coverage all year and no adjustment applies, that's $2,296.80 in additional premiums.

Treat the 2027 thresholds as estimates

CMS is expected to announce the official 2027 figures in November. Early projections put the first threshold near $112,000 for single filers and $224,000 for joint filers. However, those aren't confirmed limits!

The tax year matters just as much: 2025 income generally determines 2027 premiums. Withdrawals or conversions made during 2026 generally affect 2028 premiums, whose thresholds aren't known yet. Planning right up to an estimated cutoff leaves little room for surprises.

Smaller Roth conversions could help limit the increase

Converting smaller amounts over several years could help avoid a large income spike. Before choosing an amount, account for other income, including required withdrawals and investment gains.

A surcharge doesn't automatically make the conversion a bad choice. The question is whether the future tax savings are worth the taxes and extra Medicare premiums you'd pay along the way.

Give directly from an IRA if you qualify

If you're at least 70½ and already give to charity, a qualified charitable distribution could help. Eligible transfers go directly from your IRA to a qualifying charity and are excluded from income, subject to annual limits and other rules.

A QCD may also satisfy part or all of your IRA required minimum distribution. It isn't available directly from a 401(k), and withdrawing money first, then donating it, doesn't produce the same result.

A lower income after retirement could qualify you for relief

If retirement, reduced work hours, or a spouse's death lowered your income, request a new determination using Form SSA-44. Provide evidence of the event and your lower income.

This differs from a formal appeal, which generally uses SSA-561 or Social Security's online process. A one-time withdrawal alone isn't a qualifying life-changing event. Check the letter's tax year and income figures before assuming the charge is something you simply have to accept.

Bottom line

A large 401(k) withdrawal could cost more than the income tax you owe. It could also raise your Medicare premiums two years later, with a separate surcharge for each enrolled spouse. Before taking extra money out, check how much room you have below the next income threshold.

This planning matters before you enroll in Medicare, too. If you sign up at 65, income from the year you turned 63 generally helps determine your premiums. One of the smart moves for seniors is to include that future Medicare cost when deciding how much to withdraw or convert.

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