For retirees, there are generally two big surprises when it comes to Medicare.
The first is that Medicare is not actually free. The retirement program is America’s closest thing to universal health insurance, and it does cover everyone over 65 regardless of health or pre-existing conditions. However, Medicare also has different costs based on your coverage and household.
The second surprise is that those costs fluctuate. Medicare Part B and Part D premiums can change from year to year based on your historic income. Specifically, each year your premiums are based on your income two years prior. This means that if you make a big portfolio withdrawal this year, your premiums will go up in two years. Fortunately, it also means that your premiums will go back down the following year if this withdrawal was a one-time thing.
For example, let’s say that you withdraw an additional $60,000 this year from your retirement plan. Here’s how it will affect your Medicare premiums, with all numbers accurate as of 2025.
Consider speaking with a financial advisor if you’re interested in running your retirement plans by a professional.
What Are Medicare Premiums?
Medicare, the government health care program for individuals over the age of 65, has four main parts. Each part offers different coverage and has its own individual cost structure as follows:
- Medicare Part A: “Traditional” Medicare that covers inpatient and hospital care. No premiums for most people, potential deductibles.
- Medicare Part B: Covers outpatient care, doctor’s visits and medical devices. Premiums start at $185 per month in 2025, and can increase based on household income.
- Medicare Part C: A public/private program that allows you to fund private insurance through Medicare. Premiums are based on the private insurance you select.
- Medicare Part D: Covers prescription drugs. Premiums are based on the plan you select, and can increase based on household income.
Medicare Part C is its own entity, and prices vary based on the private coverage you select.
Medicare Parts B and D have fixed price increases that scale based on your household income. They are calculated with a system called “IRMAA.”
Introducing IRMAA
IRMAA stands for Income-Related Monthly Adjustment Amount. This is the formula that calculates how much your Part B and Part D premiums increase with household income. This formula is based on your household’s Modified Gross Adjusted Income, or “MAGI.”
Modified Gross Adjusted Income is a case-specific value. It is defined as your Gross Adjusted Income, modified by the specific requirements of any given program. Here, you take your Gross Adjusted Income (all taxable income after taking above-the-line deductions, but before applying your standard deduction or line-item deductions) and include all tax-exempt interest. This is your household income for the purposes of calculating Medicare premium increases.
Under IRMAA, your Medicare Part B premiums begin at $185 per month for all households with income below $106,000 individual/$212,000 joint. Above this threshold, there are different premium tiers for different income levels. For example, between $106,000 and $133,000 individual/$212,000 and $266,000 joint, your Medicare Part B premiums would be $259 per month. This scale goes up to a maximum monthly premium of $628.90 for households with incomes greater than $500,000 individual/$750,000 joint.
Under IRMAA, your Medicare Part D premiums have a flat modifier. Your base premium depends on the specific Part D coverage that you select. From there, you then pay an additional amount each month based on your household income. Medicare Part D uses the same income scale as Part B. Households making below $106,000 individual/$212,000 joint pay no additional modifier to their premiums. Above this, your premiums can increase to a maximum of +$85.80 per month for households making $500,000 individual/$750,000 joint.
A financial advisor can help you navigate Medicare rules and premiums as well as other components of retirement. Get matched with an advisor today.
Premiums Can Fluctuate
Medicare premium increases are not permanent.
Each year, Medicare calculates your IRMAA on a 12-month basis, meaning that a premium increase generally applies for the entire year. That said, you can appeal your premiums if your situation changes significantly over time.
The premium adjustments are based on your taxable income from two years prior. This means, for example, that at the start of 2026, Medicare will calculate your Part B and Part D premiums based on your total taxable income from 2024. Then, the program will run this formula again for your 2027 premiums based on your taxable income from 2025, and so on.
This means two things. First, your Medicare premiums can fluctuate from year to year if your income changes significantly. Second, your premium changes have a two-year tail. Changes to your income in any given year will not affect your premiums for another two years. You won’t see an immediate surge if you make a large withdrawal from a taxable retirement account right now but, beyond a situational (rarely granted) appeal, there’s also little you can do to mitigate a premium increase when it happens.
How Would A $60,000 Withdrawal Affect Your Premiums?
Here, say that you take an additional $60,000 from your retirement accounts this year. How will this affect your Medicare premiums?
The first answer to that question is: temporarily. This will impact your monthly premiums two years from now, and that increase will last 12 months. On one level that’s a hassle, because there’s nothing you can do to stop the coming price hike. On the other hand, at least you can plan for those additional costs, and they might eventually fall off.
That “might” is based on how you handle your income next year. If this is a one-time withdrawal, and you resume ordinary levels of income next year, then your Medicare premiums will also return to normal after a one-year increase. If you continue to make larger portfolio withdrawals, then your premiums may remain higher.
Beyond that, the question is how this withdrawal affects your overall income from all sources. This includes planned withdrawals from a retirement portfolio, such as a 401(k) or an IRA, as well as taxable Social Security benefits. We emphasize the taxable part, because many people miss this. You do not calculate IRMAA based on your total Social Security, just the percent of benefits (likely 50% to 80%) on which you paid taxes.
Which brings us to the next point. Your Medicare premiums are calculated based on taxable income, which means they do not include funds taken from a Roth IRA or a Roth 401(k). So, if you have the option to take your $60,000 from a Roth portfolio, doing so will ensure that your premiums remain unchanged based on that withdrawal.
Beyond that, if your $60,000 withdrawal shifts your income tax bracket this year, it may shift your IRMAA premiums bracket in two years.
For example, say that you have historically been an individual with $100,000 in taxable income across all sources. (We will disregard inflation for the sake of example.) In 2025, this means that you pay $185 per month in Part B premiums and +$0 in Part D premium increases.
However, say that in 2025 you also take an additional $60,000 out of a 401(k), increasing your taxable income to $160,000 for the year. This would have no immediate impact on your Medicare premiums, but in 2027 you would pay $370 per month for Part B premiums and a +$35.30 Part D premium increase. In 2026, you return to your standard $100,000 taxable income, and in 2028 your Medicare premiums would return to $185 Part B/+$0 Part D.
Medicare premiums fluctuate, but the good news is that you do have time to prepare for them. You can mitigate future increases by structuring your income in any given year, withdrawing a little bit less or taking more money from untaxed accounts in order to keep yourself within a given bracket. It will take a little planning, but it can save you a lot of money in the long run.
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The Bottom Line
Medicare Part B and Part D premiums can increase based on your household income. This is recalculated annually, which means your premiums can go up, but it also means that price hike might be short term.
More Tips
- There are a surprising number of different Medicare plans and options that you can choose from. It’s not one-size-fits-all, so here’s how to pick the right plan for you.
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