Quick Read
High income triggers IRMAA, pushing Medicare Part B premiums from $203 to $690 per month and costing retirees up to $487 extra monthly.
Medicare uses a two-year lookback period, so income at 63 sets premiums at 65, making retirement withdrawals strategically critical starting at that age.
Roth IRA distributions are excluded from Medicare’s income calculation, and spreading or timing large withdrawals before 63 can help avoid IRMAA surcharges entirely.
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When you are retired, you have to be careful about the money choices you make. Unfortunately, some of your financial decisions could have consequences you don’t expect. In fact, for many seniors, making one simple choice with their retirement plans could end up costing them $487 per month.
Here’s how this could happen, along with some tips on how you can avoid it.
How retirees could cost themselves a lot of money
If you are retired and you are planning on using Medicare for your health insurance, you could cost yourself up to $487 per month in benefits if your income is too high in any year after age 63. That’s because of the Income-Related Monthly Adjustment Amount (IRMAA).
See, Medicare Part B (which pays for outpatient care) is not free. You have to pay premiums, which typically come directly out of your Social Security checks. Most retirees pay the standard premium, which is $202.90 in 2026. But retirees whose incomes cross a certain threshold are subject to IRMAA and must pay more — sometimes much more. Premiums could climb as high as $689.90 for retirees in the highest income bracket.
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Medicare doesn’t make its premium determination based on the most recent income you report, though. There is a two-year lookback period. So, your premium amount due at 65 (the first year when you become eligible for Medicare) will be based on income at age 63, while premiums when you’re 66 will be based on income reported when you were 64, and so on. This means that, starting at age 63, you must be aware of the IRMAA rules when deciding how much money to take out of your 401(k) or other accounts that provide taxable income.
What can you do about it?
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Avoiding a huge Medicare surcharge should be a top priority if it’s doable, but it’s not always possible. Some retirees simply need to take large withdrawals from retirement plans that put their income over the threshold. If you have to pay the bills or cover other critical costs, you may not be able to be strategic about when you take distributions from retirement plans just to avoid extra Medicare premiums.
But there are steps you can take to try to reduce the extra charges. Investing in a Roth is one possibility, as qualified distributions from a Roth won’t count when Medicare looks at your income. If you have to take a one-time large withdrawal from a retirement account that will push you into a higher IRMAA bracket, you might also want to try to time that to happen before you are 63 and your income starts being scrutinized to set Medicare costs. Or you may be able to spread out a larger withdrawal over two years so you can stay below the income levels where premiums rise.
Avoiding these extra premiums is just one of many strategic moves you may want to make to try to ensure your hard-earned retirement funds last as long as possible. A financial advisor can help you create a structured withdrawal strategy that preserves your nest egg and limits any extra taxes or fees you may have to pay the government.
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