Do IRA withdrawals count as income for Medicare

You have worked hard, saved diligently, and now you are ready to enjoy retirement in New York. Whether you are strolling through Central Park, enjoying the cultural scene in Manhattan, or relaxing upstate, one critical question often arises:

How do withdrawals from your retirement accounts such as IRAs, 401(k)s, and Roth IRAs impact your Medicare premiums?

Let us break it down.

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Understanding Medicare Premiums and IRMAA

Medicare provides essential healthcare coverage for retirees, but it is not entirely free.

While Medicare Part A (hospital insurance) is typically premium free, Medicare Part B (medical insurance) and Part D premiums (prescription drugs) come with monthly costs. These costs can increase significantly for higher income beneficiaries because of the Income Related Monthly Adjustment Amount (IRMAA) which is an extra surcharge added to your standard premiums.

For many New York retirees, especially those living in areas with higher living costs like Manhattan or Westchester, understanding IRMAA is crucial. A sudden increase in premiums can affect your monthly budget just as much as property taxes or city living expenses.

The Role of MAGI

Your Modified Adjusted Gross Income (MAGI) determines whether you will pay an IRMAA surcharge.

Medicare uses a two year look back based on your IRS tax return. For example, your 2025 Medicare premiums are based on your 2023 reported MAGI. This includes taxable income from sources such as IRA distributions, 401(k) withdrawals, Social Security benefits, and certain investment income.

Traditional IRA Withdrawals and Medicare Costs

Withdrawals from a traditional IRA including Required Minimum Distributions (RMDs) are treated as taxable income. This means they increase your MAGI and can push you into higher IRMAA brackets which raises your Medicare Part B and Part D premiums.

Key points you should know:

• IRA withdrawals count as income for Medicare purposes.
• RMDs are mandatory after age 73 and included in MAGI.
• Large IRA distributions can trigger a premium increase.

Imagine if you’re a retiree in Brooklyn who takes a large IRA distribution to renovate your brownstone. That one decision could push you into a higher IRMAA bracket and increase your Medicare costs for the next year.

401(k) Withdrawals and IRMAA

Like traditional IRAs, 401(k) withdrawals are tax deferred during your working years but fully taxable when withdrawn. This means:

• Every dollar withdrawn from a 401(k) adds to your MAGI.
• High income years such as when taking a lump sum distribution can lead to significant IRMAA surcharges.
• Strategic planning is essential to avoid spikes in Medicare premiums.

For example, a retired executive in Midtown who cashes out a large portion of a 401(k) to buy a vacation home in the Hamptons could see a sharp increase in Medicare premiums.

Roth IRA Withdrawals: A Tax Free Advantage

Here is the good news.

Roth IRA withdrawals from qualified Roth accounts are generally tax free and do not count toward MAGI. This makes Roth IRAs a powerful tool for managing retirement income and controlling Medicare costs.

Why Roth IRAs Matter:

• Roth conversions before Medicare eligibility can reduce future taxable income.
• Withdrawals from Roth accounts will not affect IRMAA or your monthly premium.
• This strategy requires paying taxes upfront but can save thousands in Medicare costs later.

Many New York retirees use Roth accounts to maintain flexibility, especially when planning for unpredictable expenses like rising healthcare costs or property taxes in the city.

Strategies to Manage IRMAA and Medicare Premiums

1. Roth Conversions: Convert traditional IRA or 401(k) funds to Roth before age 65 to minimize taxable income later.
2. Qualified Charitable Distributions (QCDs): If you are over 70½, direct up to $105,000 from your IRA to charity. QCDs satisfy RMDs without increasing MAGI. Many retirees in New York support local charities or cultural institutions like the Metropolitan Museum of Art through QCDs.
3. Withdrawal Timing: Plan distributions carefully considering the two year look back for IRMAA.
4. Coordinate with Social Security: Delaying Social Security benefits can help manage income levels and avoid IRMAA surcharges.
5. Work with a Financial Advisor: Professional advisory services can help optimize your retirement plans, tax strategy, and Medicare coverage.

Common Questions

• Does my RMD count as income for Medicare? Yes, RMDs from traditional IRAs and 401(k)s are taxable income and included in MAGI.
• Can Roth IRA withdrawals affect IRMAA? No, qualified Roth withdrawals are tax free and excluded from MAGI.
• What is MAGI for Medicare? It is your AGI plus tax exempt interest such as municipal bond income.
• Can Medicare premiums be deducted from IRA? No direct deduction, but premiums may be deductible as medical expenses on your tax return.

Next Steps

Managing IRA withdrawals, 401(k) distributions, and Roth IRA strategies is essential for controlling Medicare premiums and avoiding unexpected IRMAA surcharges.

With proactive financial planning, retirees in New York can optimize retirement income, reduce Medicare costs, and enjoy a more predictable financial future whether they are living in Manhattan, Long Island, or the Hudson Valley.

Book A FREE Medicare Consultation today.