How Retirement Withdrawals Can Impact Your Medicare Premiums

Retirement Withdrawals & Medicare

In 2025, retirees often encounter two big surprises when it comes to Medicare:

1. Medicare Isn’t Free: While Medicare provides health coverage for those over 65, the costs vary based on income and coverage choices.

2. Premiums Can Fluctuate: Medicare Part B and Part D premiums are tied to your income from two years ago. This year, a large withdrawal from your retirement account could raise your premiums in two years—but only temporarily.

Understanding Medicare Premiums

Medicare has four main parts, each with its own costs:

• Part A: Covers hospital care. Most people don’t pay premiums, but deductibles may apply.

• Part B: Covers outpatient care and medical devices. Premiums start at $185/month in 2025 and can increase based on income.

• Part C: A private insurance option funded through Medicare. Costs vary by plan.

• Part D: Covers prescription drugs, with premiums based on your chosen plan and income level.

Parts B and D use the Income-Related Monthly Adjustment Amount (IRMAA) to calculate premium increases based on your Modified Adjusted Gross Income (MAGI).

What Is IRMAA?

IRMAA determines premium increases for higher-income households. In 2025, individuals earning below $106,000 (or couples below $212,000) pay the base Part B premium of $185/month. Higher incomes lead to tiered increases, maxing out at $628.90/month for individuals earning over $500,000.

For Part D, premiums include a base cost plus a flat income-based surcharge, up to $85.80/month for top earners.

How Retirement Withdrawals Affect Medicare Premiums

Say you withdraw $60,000 from a retirement account in 2025, raising your income from $100,000 to $160,000. Here’s what happens:

• 2025: No immediate premium change.

• 2027: Your Part B premium increases to $370/month (from $185), and Part D adds $35.30/month.

• 2028: If income returns to $100,000, premiums revert to $185/month for Part B and no surcharge for Part D.

How to Manage Premium Increases

To avoid higher Medicare premiums, consider these retirement withdrawal strategies:

• Use Roth accounts for withdrawals, as they aren’t counted toward taxable income.

• Spread withdrawals over multiple years to stay within lower IRMAA brackets.

• Plan ahead with a financial advisor to optimize your retirement income and minimize costs.

Know Where You Stand

Medicare premiums are based on income and recalculated annually, so a spike is often temporary. With smart planning, you can avoid unnecessary increases and make the most of your retirement funds.

If you’re unsure how withdrawals might affect your premiums, consult with a CPA Nerd to ensure your retirement strategy aligns with your long-term goals.