I Withdrew $85,000 From My 401(k) This Year, But It Increased My Medicare Premiums. Is This Permanent?

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Medicare premium increases aren't permanent, but they can have a long tail if you don't manage your income well.

Although most people receive Medicare Part A for free, Parts B and D typically include monthly premiums. Depending on your household income, these premiums may be increased by a needs-based allowance called the Income Related Monthly Adjustment Amount (IRMAA). As the name suggests, this is an increase in your monthly Medicare premiums caused by different levels of household income.

For example, let's say you're withdrawing $85,000 from your 401(k) this year and you're concerned about your Medicare premiums increasing. Here's what to think about. And for customized guidance, use this free tool to match with a vetted fiduciary financial advisor.

There are four parts of Medicare, each with its own premium structure. Under Medicare Parts A and C, your premiums are generally not affected by household income.

Medicare Part A is what most people think of as “classic” Medicare. It includes hospital treatment, many types of doctor visits, and other inpatient care. For most people, it has no monthly premiums. In the rare event that you pay Part A premiums, it will be based on your work history and not your household income.

Medicare Part C is a public-private partnership, where you can use your Medicare coverage to help pay for private insurance. These plans almost always have monthly premiums, but the exact coverage depends on the plan you choose.

Under Medicare Parts B and D, you typically pay a premium based on the specific plan you are enrolled in. You can then adjust these premiums to your household income.

Medicare Part B primarily covers outpatient treatments, personal physician care, and medical devices. For most households, this requires a base premium of $185 per month (effective beginning in 2025), adjusted based on your income.

Medicare Part D mainly covers prescription drugs. Most households require a monthly premium. The exact amount varies depending on the Medicare Part D plan you choose, but you may also need to make an adjustment based on your household income.

The adjustments to your Part B and Part D premiums are called IRMAAs (Income-Related Monthly Adjustment Amount). In all cases, the IRMAA increases your Medicare premium by a specific amount based on your household income. This increase applies for the entire year.

Medicare premium adjustments are based on what is called a Modified Adjusted Gross Income, or MAGI. This means that Medicare will start by using your adjusted gross income (your income less any tax deductions above the line, but not less your standard deduction). It then changes that AGI based on specific qualifications to create a modified adjusted gross income. Here, the MAGI is your adjusted gross income plus any tax-free interest.

In 2025, Part B IRMAAs will begin at incomes above $106,000 individually/$212,000 jointly. Below this threshold, you will pay $185 per month in Part B premiums. Above this level, your monthly premiums increase. This is a graduated scale, with premiums rising to $259 per month at $106,000 individually/$212,000 jointly and rising to $628.90 for households with income above $500,000 individually/$750,000 jointly.

In 2025, Part D IRMAAs will begin at incomes above $106,000 individually/$212,000 jointly. Again, this is a tiered scale. You pay an additional $12.90 per month for $106,000 individual/$212,000 joint, up to an additional $81 per month for incomes above $500,000 individual/$750,000 joint.

Medicare calculates this adjustment based on a two-year lookback period. This means that your Medicare premiums for a given year are based on your household income from two years ago. For example, in 2025, your Medicare premiums will be determined by the adjusted gross income you claimed on your taxes in 2023. In 2025, your income and portfolio withdrawals will determine your 2027 Medicare premiums.

Remember, a financial advisor can help you keep track of Medicare rules and any changes.

Here you have withdrawn $85,000 from your retirement plan and are concerned about how this will affect your Medicare premiums. To answer this, we actually need to look at a few different questions.

First, premium increases, as a threshold value, are never permanent. They are based on your annual household income from year to year. If your income fluctuates, your premium will also fluctuate. If you withdraw enough money in one year to put your income into a new Medicare bracket, you can accomplish that by withdrawing less in future years.

Second, if your premiums have increased this year, your current withdrawal has nothing to do with that. Please note that the income adjustment is based on a two-year look back. So the money you withdraw this year won't affect your premiums for two more tax seasons. If your premiums have increased this year, it is because of withdrawals you made two years ago.

To see if this remains the case, look at your recordings from recent years. If you continue to withdraw approximately the same amount, your premium will probably remain high for another two years. You can reduce them in the future by managing your income next year.

Finally, your current $85,000 withdrawal will not affect your Medicare premiums this year. Depending on your income, this withdrawal may have consequences for your premiums in two years. If your $85,000 withdrawal was standard, it likely won't affect your premiums. You pay the same rates you did in the past if you withdraw the same amounts you did in the past.

In addition, the IRMAA calculation is based on your entire income. This includes Social Security and other portfolio withdrawals. An extra $85,000 will most likely push someone to a new premium level, and will also likely increase premiums for a married couple. For example, suppose you normally have an income of $150,000. As an individual, you would pay €370 per month in 2025 at that income level. An extra €85,000 would bring your income to €235,000, moving you up two whole levels to €591.90 per month.

This will not necessarily be permanent. However, it will affect you for a whole year, as long as you get your income and withdrawals back to normal next year, it will be a one-year problem.

Consider talking to a fiduciary financial advisor if you have questions about how Medicare premiums best fit into your retirement income strategy.

Medicare Part B and Part D premiums may increase based on your household income, but this is not permanent. By managing withdrawals from your pension fund you can keep your costs low.

We've talked about how your Medicare costs can increase, now let's look at the other side of that equation. Here's how to lower your Medicare costs… possibly way down.
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