“I typically keep my withdrawals below the Medicare income threshold.” (Photo subject is a model.) – Getty Images
Dear Quentin,
I have Social Security and a pension that cover most of my bills. I generally withdraw money from my traditional 401(k) for projects, larger expenses and sometimes just to stay ahead on upcoming bills.
I typically keep my withdrawals below the Medicare income threshold to keep my premiums as low as possible. I understand that Medicare uses a two-year look-back period, but I’ve been considering taking a larger withdrawal.
Most Read from MarketWatch
Doing so would likely trigger higher premiums. Is there a form I can submit indicating that this would be a one-time event so that my premiums don’t increase significantly?
If you have experienced a qualifying “life-changing event” you could ask the Social Security Administration to reconsider your IRMAA determination. – MarketWatch illustration
Dear Over 65,
Brace yourself for a one-time bump.
This extra income, as you say, will open you up to potential Medicare income-related monthly adjustment amount surcharges. IRMAA surcharges are based on your modified adjusted gross income from two years earlier. That means this additional 401(k) withdrawal will matter in two years, because it will be included in the income data used to calculate your Medicare premiums at that time, but it will generally affect only one year’s Medicare premiums. You can only avoid or reduce surcharges if the income change is tied to a “life-changing event,” such as retirement or the death of a spouse.
The IRMAA surcharge is not a penalty. IRMAA thresholds are staggered, and they can, as you rightly point out, result in higher Part B and Part D premiums. You may also be subject to the 3.8% net investment income tax on investment earnings. For 2026, the maximum IRMAA surcharge for a married couple in the highest bracket is roughly $6,936 per person per year, or $13,872 for a couple. Even after you pay capital-gains tax, the withdrawal should still be worth it relative to the tax drag. (Check with your financial adviser to make sure there aren’t other unexpected tax consequences.)
Your instinct to contact the Social Security Administration proactively is not unreasonable. The agency recalculates IRMAA annually using tax information it receives from the Internal Revenue Service, but because of the two-year look-back rule, there can be a significant delay before a drop in income is reflected in your Medicare premiums. If you have experienced a qualifying life-changing event — the list also includes divorce and a substantial reduction in work hours — you could ask Social Security to reconsider your IRMAA determination and request that it use more up-to-date income information.
This discretionary withdrawal probably won’t qualify under the life-changing-event rule. Once you get past the year with the higher 401(k) withdrawal, a lower income alone will not automatically qualify you for an immediate IRMAA reduction. Given that this higher income resulted from a discretionary financial transaction — a large 401(k) withdrawal, in this case, but the same would apply for a Roth conversion or the realization of capital gains — and no qualifying life-changing event occurred, the SSA may not adjust your surcharge right away. It will remain in place until the lower-income tax year is reflected in the annual calculation.
This rock (IRMAA surcharge) and hard place (the 401(k) withdrawal) is the reason people double down on their Roth conversions when they are in that sweet spot between retirement and taking Social Security benefits. “The impact of IRMAA can be especially detrimental for people who still have sizable income in retirement,” says Baird Private Wealth Management. “It’s important to get out in front of these issues and take a thoughtful approach to how you take your RMDs.” It suggests tapping your retirement fund before age 73 to help bring down your balances, along with your RMDs.
“Each December, Medicare recipients will receive a notice telling them if their premiums for the upcoming year have been adjusted under the IRMAA rules,” Baird adds. “Medicare recipients whose MAGI was above $109,000 (or $218,000 for a couple) from two years prior (2024 in this case) will pay a higher premium under IRMAA. Remember, though, that you are not necessarily locked into a permanent premium increase. Medicare premiums are recalculated each year, meaning just because you were subject to IRMAA one year doesn’t mean you will be the next — or vice versa.”
So the good and bad news are the same for you: You don’t have one of those qualifying life-changing events.
