401(k) withdrawals count as income for Medicare premiums, but not always for coverage decisions

When you withdraw money from a 401(k), Medicare counts it as income for the purpose of calculating your monthly premiums. This means a large withdrawal can raise what you pay for Part B (doctor visits) and Part D (prescription drugs). However, 401(k) withdrawals do not affect whether you are covered by Medicare or what services Medicare will pay for — they only affect how much you pay out of pocket each month.

The income that matters to Medicare is your Modified Adjusted Gross Income (MAGI), which includes 401(k) withdrawals, Social Security, pensions, interest, dividends, and rental income. If your MAGI crosses certain thresholds, you pay higher premiums through a system called Income-Related Monthly Adjustment Amounts (IRMAA). The thresholds and surcharge amounts change each year.

Key Takeaways

  • 401(k) withdrawals are added to your income when Medicare calculates your Part B and Part D premiums, potentially raising what you pay each month.
  • Medicare uses your Modified Adjusted Gross Income from two years prior — if you withdraw in 2024, Medicare looks at your 2022 tax return.
  • A large one-time withdrawal can push you into a higher premium bracket for up to three years, even if your income drops again.
  • You can request that Medicare recalculate your premiums if your income drops due to retirement, job loss, or other life changes, and the change will take effect the following month.
  • Roth conversions and other retirement moves have different income effects, so planning withdrawals with a tax professional can help you manage Medicare costs.

How Medicare calculates income from 401(k) withdrawals

Medicare does not look at your current-year income. Instead, it uses your tax return from two years before. If you turn 65 in 2024 and enroll in Medicare, the agency reviews your 2022 tax return to set your premiums. If you withdraw $50,000 from your 401(k) in 2024, that withdrawal appears on your 2024 tax return, which Medicare will use to set your premiums in 2026.

The income figure Medicare uses is your Modified Adjusted Gross Income (MAGI). For most people, this is your Adjusted Gross Income (AGI) from your tax return, plus any tax-exempt interest income. 401(k) withdrawals are included in full — there is no special treatment or exclusion for retirement account distributions.

Because Medicare looks back two years, a large withdrawal can affect your premiums for up to three years. For example, a withdrawal in 2024 raises premiums in 2026 and 2027, even if you do not withdraw anything in 2025 or 2026.

Income thresholds and premium surcharges for 2024

Medicare Part B and Part D premiums increase if your MAGI exceeds certain thresholds. The thresholds depend on your filing status — they are lower for single filers than for married couples filing jointly. In 2024, the thresholds start at $97,000 for single filers and $194,000 for married couples filing jointly. Each threshold bracket above the base level adds a surcharge to your monthly premium.

The surcharge amounts vary by bracket. Someone filing single with a MAGI between $97,001 and $123,000 pays one surcharge level; someone between $123,001 and $153,000 pays a higher surcharge; and so on. The highest earners pay substantially more. These thresholds and amounts change annually, so it is worth checking the current year's figures on Medicare.gov before making a large withdrawal.

The surcharge applies to both Part B and Part D. If you have a Medigap or Medicare Advantage plan, the surcharge does not explore to those premiums — only to the government-run Part B and Part D.

Planning withdrawals to manage Medicare costs

If you are approaching Medicare age or already enrolled, timing and size of 401(k) withdrawals can affect your premiums. One strategy is to spread withdrawals across multiple years rather than taking one large sum, so that no single year pushes you into a higher income bracket. Another is to take withdrawals before you turn 65 and enroll in Medicare, since Medicare only looks at income from age 65 onward.

Some people use Roth conversions — moving money from a traditional 401(k) to a Roth IRA — as a way to manage future income. The conversion itself counts as income in the year it happens, but once the money is in the Roth, future withdrawals do not count as income for Medicare purposes. This can be useful if you expect to need large withdrawals later in retirement.

Required Minimum Distributions (RMDs) from 401(k)s and traditional IRAs also count as income for Medicare. If you do not need the money, you cannot avoid the income hit by leaving it in the account — once you reach age 73, you must withdraw a certain amount each year, and that amount counts toward your MAGI.

What to do if a withdrawal raises your premiums unexpectedly

If you have a major change in income — such as retirement, a job loss, or a one-time withdrawal — you can ask Medicare to recalculate your premiums. This is called a Life-Changing Event or deemed filing. You must contact Social Security or Medicare within 60 days of the event and provide documentation, such as a letter from your employer or a tax return showing the income change.

If Medicare approves your request, the new premium takes effect the following month. This means if you withdraw a large sum in January and contact Medicare in February, you may be able to lower your premiums starting in March, rather than waiting until the following year. However, you will need to show that your income has actually dropped — a one-time withdrawal does not count as a permanent income change unless your circumstances have truly changed.

Keep in mind that if you request a recalculation and your income later increases again, Medicare may adjust your premiums upward once more. The recalculation is based on your current circumstances, not a may provide of lower premiums forever.

How 401(k) withdrawals differ from other income sources

Not all retirement income affects Medicare premiums equally. Social Security benefits count as income, but only 85% of your benefits are included in the MAGI calculation — there is a partial exclusion. Roth IRA withdrawals do not count as income at all, which is one reason some people convert to Roth accounts before Medicare age. Pension income counts in full, just like 401(k) withdrawals.

Capital gains and investment income also count toward MAGI. If you sell stocks or real estate at a profit, that gain is included in the income calculation. However, if you withdraw money from a taxable brokerage account that you originally deposited after taxes, only the gains count — the original deposit does not.

Understanding these differences can help you plan which accounts to tap first in retirement. Withdrawing from a Roth IRA or taxable brokerage account (up to your cost basis) may have less impact on Medicare premiums than a 401(k) withdrawal of the same size.

Frequently Asked Questions

If I withdraw from my 401(k) before I turn 65, does it still affect my Medicare premiums?

No. Medicare only looks at income from the year you turn 65 onward. If you withdraw money at age 62 or 63, it does not appear on any tax return that Medicare will review. However, you may owe income tax and an early withdrawal penalty (10% plus income tax) if you withdraw before age 59½, unless you meet a specific exception.

Can I avoid the income hit by taking my 401(k) as a loan instead of a withdrawal?

Yes. A 401(k) loan is not counted as income, so it does not affect your Medicare premiums. However, you must repay the loan, and if you leave your job or retire, the loan typically becomes due within 60 days or it is treated as a withdrawal and taxed. Check your plan's rules before borrowing.

What if my spouse has a high income — does that affect my Medicare premiums?

Yes, if you are married and file taxes jointly. Medicare uses your combined household MAGI, so your spouse's income counts toward your thresholds and surcharges. If you file separately, each of you is assessed individually, but filing separately often results in higher taxes overall, so it is worth comparing both scenarios with a tax professional.

Does a 401(k) withdrawal count as income for Medicaid or other benefits?

Yes. Medicaid, Supplemental Security Income (SSI), and other means-tested programs also count 401(k) withdrawals as income. If you receive any benefit based on income limits, a large withdrawal could affect your coverage or benefits. Check with the specific program before withdrawing.

If I take a withdrawal in December, when does it affect my Medicare premiums?

A withdrawal in December 2024 appears on your 2024 tax return, which Medicare reviews in 2026 to set your 2026 premiums. So the effect is delayed by about 14 months. This is why some people time large withdrawals strategically — taking them in years when they expect other income to be lower.