I Plan to Withdraw $110k From My 401(k) This Year. Will This Cause My Medicare Premiums to Go Up?

Your 401(k) withdrawals can impact your Medicare premiums. While few households pay Medicare Part A premiums, most households do pay premiums for Medicare Part B and Part D. These premiums are based in significant part on your taxable household income. If your income goes up, your premiums rise in response. However, the good news is that your premiums are recalculated each year, so if your income goes back down, your premiums will, too.

Consider speaking with a fiduciary financial advisor for specific guidance. You can use this free tool to match and speak with vetted advisors for free.

What Are Medicare Premiums?

Medicare is a government health care program for Americans age 65 and older. There are four parts to this program, Parts A through D. Each part has a different cost structure.

2025 Medicare Costs By Part

How Does Income Increase Medicare Premiums?

For Medicare Part B and Part D, premiums are calculated based on a concept called Income-Related Monthly Adjustment Amount (IRMAA). This is the index for how Medicare adjusts your monthly premiums based on your annual taxable income.

For Medicare Part D, you pay a monthly premium based on the plan you select. You may then pay an additional surcharge based on your income. 

IRMAA: Medicare Part B and D

The IRMAA is calculated annually based on a two-year lookback, meaning that each year your Medicare premiums are based on your income from two years ago. So, for example, in 2025 your premiums would be based on your taxable income from 2023. In 2026, your premiums would be based on your taxable income from 2024.

This formula uses your Modified Adjusted Gross Income (MAGI), which is your Adjusted Gross Income (AGI) but modified to meet the specific requirements of a given program. In the case of Medicare, an MAGI includes your total adjusted gross income and tax-exempt interest income, with some non-taxable Social Security benefits and deductions included. 

For most households, Medicare’s MAGI will be similar, if not identical, to their standard taxable income. This will include all taxable sources of income, which means your Medicare premiums will be affected by factors such as your Social Security benefits, pre-tax portfolio withdrawals and taxable portfolio withdrawals. Medicare premiums are not affected by Roth IRA or Roth 401(k) withdrawals.

Consider speaking with a financial advisor for help integrating the elements of your retirement plan.

Will Withdrawing $110,000 From Your 401(k) Affect Your Premiums?

In a word, yes. Unless you are at the top of the IRMAA brackets, an additional $110,000 in taxable income will almost always increase your Medicare Part B and Part D premiums. Exactly how much will depend on your underlying income and your marital status.

For example, say that you are an individual with a combined $75,000 income from Social Security benefits and portfolio withdrawals. An additional $110,000 would push your total income to $185,000. This would increase your Medicare Part B premiums from $185 to $480.90 per month. It would increase your Part D surcharge from $0 to $57.

Or, say that you’re a married couple with a combined $200,000 income from benefits and portfolio withdrawals. An additional $110,000 would push your total income to $310,000. This would increase your Medicare Part B premiums from $185 to $370. It would increase your Part D surcharge from $0 to $35.30.

The good news here is that, depending on your financial plans, this fluctuation may only be temporary.

First, these premium increases will not take effect for two years. If you withdraw this money in 2025, for example, you have until 2027 to save up for those price hikes.

Second, if this is a temporary withdrawal then it will be a temporary increase. If you return to your normal rate of withdrawals in 2026, then your premiums will go back down in 2028. However, if you continue to withdraw an additional $110,000 per year from your 401(k), your prices will remain higher. 

A financial advisor can help you build and navigate your personal retirement strategy.

Strategies to Manage Medicare Premium Increases

If you expect to take large withdrawals from your retirement accounts, planning ahead can help you avoid unnecessary hikes in your Medicare premiums. Because IRMAA brackets are based on income, the timing and source of your withdrawals matter.

One common retirement withdrawal strategy is to spread withdrawals over several years rather than taking a large lump sum in a single year. Instead of pulling $110,000 all at once, you take smaller withdrawals over two or three years. This helps keep your MAGI below the next IRMAA threshold, reducing the chance of a sharp jump in premiums.

Using Roth accounts is another way to limit IRMAA exposure. Withdrawals from Roth IRAs and Roth 401(k)s do not count toward your Medicare MAGI, so they do not affect your premiums. Some retirees choose to make Roth conversions before age 65 so that once they are on Medicare, they can draw from Roth accounts without increasing their taxable income.

You can also consider tax-efficient income sources. Interest from municipal bonds, for example, is typically excluded from federal taxable income and may not raise your Medicare premiums in the same way that traditional portfolio withdrawals would.

Finally, coordinate the timing of other income events. Social Security benefits, required minimum distributions (RMDs) and investment gains can all add to your MAGI. By staggering withdrawals and spreading out taxable events, you can smooth income from year to year, making it easier to stay under premium thresholds.

Bottom Line

Your Medicare premiums are based on your annual income. This is calculated with a two-year lookback, and if you aren’t careful this price hike can surprise you. 

Planning for the Medicare Gap

• Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid, in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
• Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.

Photo credit: ©iStock.com/adamkaz