I Withdrew $85k from My 401(k) This Year But It Increased My Medicare Premiums. Is This Permanent?
Eric Reed
7 min read
SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below.
Medicare premium increases aren't permanent, but they can have a long tail if you don't manage your income properly.
While most people receive Medicare Part A for free, Parts B and D typically include monthly premiums. Depending on your household income, those premiums might be increased by a needs-based surcharge called the Income-Related Monthly Adjustment Amount (IRMAA). As the name suggests, this is an increase to your monthly Medicare premiums triggered by different levels of household income.
For example, let's say that you withdraw $85,000 from your 401(k) this year and are worried about it increasing your Medicare premiums. Here’s what to think about. And for customized guidance, you can use this free tool to match with a vetted fiduciary financial advisor.
What Are Medicare Premiums?
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 covers hospital treatment, many types of doctors' visits and other inpatient care. For most people, it has no monthly premiums. In the rare case that you do pay Part A premiums it is based on your work history rather than your household income.
Medicare Part C is a public/private partnership, in which 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 generally pay a premium based on the specific plan in which you are enrolled. These premiums can then be adjusted based on your household income.
Medicare Part B mainly covers outpatient treatment, personal doctors' care and medical devices. For most households, this requires a base $185 per month premium (effective as of 2025), adjusted based on your income.
Medicare Part D mainly covers prescription medicine. For most households, it requires a monthly premium. The exact amount varies based on the Medicare Part D plan you choose, but you might also have an adjustment based on your household income.
How Do Premium Adjustments (IRMAAs) Work?
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 starts by using your Adjusted Gross Income (your income reduced by any above-the-line tax deductions, but not reduced by your standard deduction). Then it modifies that AGI based on specific qualifications to create a Modified Adjusted Gross Income. Here, the MAGI is your adjusted gross income plus all tax-exempt interest.
In 2025, Part B IRMAAs begin at incomes above $106,000 individual/$212,000 joint. Below this threshold, you will pay $185 per month in Part B premiums. Above this level, your monthly premiums increase. This is a tiered scale, with premiums increasing to $259 per month at $106,000 individual/$212,000 joint and increasing as high as $628.90 for households with incomes above $500,000 individual/$750,000 joint.
In 2025, Part D IRMAAs begin at incomes above $106,000 individual/$212,000 joint. Again, this is a tiered scale. You pay an additional $12.90 per month at $106,000 individual/$212,000 joint, all the way 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 for any given year, your Medicare premiums are based on your household income from two years ago. So, 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 Medicare premiums in 2027.
Remember, a financial advisor can help you keep up with Medicare rules and any changes that may come up.
Will Your Withdrawal Affect Your Premiums?
Here, you've withdrawn $85,000 from your retirement plan and are worried about how this will affect your Medicare premiums. To answer this, we actually have to look at a few different questions.
First, as a threshold matter, premium hikes are never permanent. They're based on your annual household income from year to year. As your income fluctuates, your premiums will fluctuate as well. If you withdraw enough in one year to push your income into a new Medicare bracket, you can manage that by withdrawing less in future years.
Second, if your premiums increased this year, then your current withdrawal had nothing to do with it. Remember, the income adjustment is based on a two-year lookback. So any money you took out this year won't affect your premiums for two more tax seasons. If your premiums increased this year, it's because of withdrawals you took two years ago.
To see if this will continue, then, you need to look at your withdrawals over the past few years. If you have kept withdrawing roughly the same amount of money, then your premiums will likely stay high for another two years. You can reduce them going forward by managing your income next year.
Finally, your current $85,000 withdrawal cannot affect your Medicare premiums this year. Depending on your income, this withdrawal might impact your premiums two years from now. If your $85,000 withdrawal was standard, then it will probably not affect your premiums. You will pay the same rates you historically have if you withdraw the same amounts you historically have.
Beyond that, the IRMAA calculation is based on your entire income. This includes Social Security and other portfolio withdrawals. An additional $85,000 is highly likely to push an individual into a new tier of premiums, and will likely increase premiums for a married couple too. For example, say that you ordinarily have $150,000 of income. As an individual you would pay $370 per month in 2025 at that rate of income. An additional $85,000 would push your income to $235,000, bumping you up two whole tiers to $591.90 per month.
This will not necessarily be permanent. It will affect you for an entire year however, as long as you return your income and withdrawals to normal next year, it will be a one-year blip.
Medicare Part B and Part D premiums can increase based on your household income, but this isn't permanent. By managing your retirement fund withdrawals, you can help keep your costs down.
A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three 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.
