How Your 401k Withdrawals Could Skyrocket Your Medicare Costs

How Medicare Determines Your Costs

If you’re on Medicare, you’re paying a monthly premium for Part B, which covers doctor visits, and possibly Part D, which covers prescription drugs. What most people don’t realize is that these premiums are based on your income from two years ago. If your income is too high, you’ll pay more for Medicare through an extra charge called IRMAA (Income-Related Monthly Adjustment Amount).

Here’s the kicker: 401k withdrawals count as taxable income. If you withdraw too much in any given year, it can push you into a higher IRMAA bracket, meaning you’ll pay more for your Medicare Part B and Part D.

The Costly 401k Withdrawal Mistake

Let’s look at an example:

• Say you’re a married couple with a taxable income of $190,000 per year—that’s below the IRMAA threshold, so you’ll pay the standard Medicare Part B premium of $185 per person in 2025.
• But let’s say you withdraw $50,000 from your 401k to remodel your home. That pushes your income to $240,000 per year, bumping you into a higher IRMAA bracket.
• Now, instead of paying $185 per month per person, your Part B premium jumps to $259 per person.
• That’s an extra $1,776 per year for you and your spouse—just because of one withdrawal!

And for single individuals, the IRMAA brackets are even lower, meaning it takes less income to trigger higher premiums.

2025 IRMAA Income Limits

Before making large withdrawals from your 401k, it’s critical to know the IRMAA income limits.

Here’s a quick rundown of the 2025 IRMAA thresholds (based on your 2023 modified adjusted gross income):

• Single filers: IRMAA kicks in at $106,000 per year
• Married couples filing jointly: IRMAA kicks in at $212,000 per year

The more you make, the more you pay—with some retirees seeing their Medicare premiums double or even triple at the highest brackets.

4 Smart Strategies to Avoid Higher Medicare Costs

Now that we’ve talked about the problem, let’s dive into the solutions that can help you avoid unnecessary Medicare costs.

1. Convert Your 401k to a Roth IRA

One of the best ways to manage your Medicare costs is by converting part of your 401k to a Roth IRA before you enroll in Medicare.

• Why? Roth IRA withdrawals don’t count as taxable income, so they won’t push you into a higher IRMAA bracket.
• Catch? You’ll pay taxes upfront on the conversion, but it can save you thousands in the long run.

Just remember: Medicare looks back two years, so plan ahead!

2. Spread Out Your Withdrawals

Instead of taking out one large lump sum, consider spreading withdrawals over multiple years to stay below IRMAA thresholds.

For example:

• Instead of withdrawing $50,000 in one year (which could trigger higher Medicare costs),
• Withdraw $25,000 over two years to keep your income in a lower bracket.

3. Use Qualified Charitable Distributions (QCDs)

If you’re 73 or older and have Required Minimum Distributions (RMDs), you can donate directly from your IRA to a charity using a Qualified Charitable Distribution (QCD).

• The benefit? QCDs don’t count as taxable income—helping you stay below IRMAA limits while still fulfilling your RMD requirement.

4. Delay Social Security Benefits

Social Security counts toward your modified adjusted gross income—which affects your IRMAA bracket.

• If you can afford to delay Social Security benefits, it can help reduce your overall taxable income and keep your Medicare costs lower.

Recap: Don’t Let 401k Withdrawals Spike Your Medicare Costs

Your 401k withdrawals can directly impact your Medicare costs, potentially costing you thousands more per year. But with smart planning, you can avoid these unexpected expenses.

Here’s what you should do:

• Consider Roth conversions to lower taxable income.
• Spread out withdrawals to stay below IRMAA limits.
• Use Qualified Charitable Distributions (QCDs) if you’re 73+.
• Delay Social Security if possible to lower taxable income.

Need Help Navigating Medicare?

If you have questions about Medicare or need help choosing the best plan for your situation, give us a call at 800-208-4974. Our services are completely free, and we’re happy to help you find the best Medicare strategy to maximize your retirement savings.