Will a Roth IRA withdrawal mean higher Medicare premiums? (2024)

FAQs

Will a Roth IRA withdrawal mean higher Medicare premiums? ›

“Modified adjusted gross income includes certain non-taxable income, but does not include distributions from Roth IRAs,” he said. “That being the case, your Medicare premiums should not increase as a result of a Roth IRA distribution.”

It does not include withdrawals from Roth 401(k)s and/or Roth IRAs. The IRMAA surcharge is determined by your earnings for two years prior to signing up for Medicare. Your income at 63 years old will affect what you pay for Medicare when you turn 65.

Manage your income.

If you're planning a Roth conversion or foresee a home sale, think about taking care of those before you turn 63 so you can get ahead of the two-year MAGI "lookback." You pay tax at the time of the conversion, but you can potentially avoid unnecessarily increasing your Medicare premiums.

"A Roth IRA or Roth 401(k) can help you save on taxes in retirement. Not only are withdrawals potentially tax-free,² they won't impact the taxation of your Social Security benefit. This is an important aspect of a Roth account that most people are not aware of.”

If you earn more than $103,000 ($206,000 if you're married), you pay higher monthly rates for both Medicare Part B and D. For 2024, your costs for Medicare Parts B and D are based on the income on your 2022 tax return.

So, in 2022, that's your 2020 return. If you took a large IRA withdrawal in 2020 to fund a big expense, you may have increased your modified adjusted gross income to the point that the government will now tack an extra charge onto your Medicare Parts B & D premiums.

Medicare participants with an income above the threshold must pay a surcharge based on their income. If you have Medicare Part B and/or Medicare Part D prescription drug coverage, you could owe a monthly surcharge based on an income related monthly adjustment amount (IRMAA).

Capital gains are a type of income, so they may affect how much you pay for Medicare coverage. Fortunately, the IRS allows homeowners who sell their primary residence to exclude up to $250,000 of the gain from their income ($500,000 if married filing jointly).

Do 401k withdrawals count as income for Medicare? The Medicare Part B Premium charged by the government changes based on your income. Taking tax-free Roth withdrawals won't affect this Medicare premium. But the distributions you take from traditional IRAs count as income for your Part B Premium.

How can I avoid paying taxes on my Roth IRA withdrawal? ›

Over 59 1/2 with account five years old or more

If the Roth IRA owner is over 59 1/2 and makes a withdrawal from an account that is five years old or more, they do not pay income taxes on the earnings they withdraw, and there are no penalties.

Will withdrawals from my individual retirement account affect my Social Security benefits? Social Security does not count pension payments, annuities, or the interest or dividends from your savings and investments as earnings. They do not lower your Social Security retirement benefits.

If you've met the five-year holding requirement, you can withdraw money from a Roth IRA with no taxes or penalties.

If you don't buy Part A when you're first eligible for Medicare (usually when you turn 65), you might pay a penalty. Most people pay the standard Part B monthly premium amount ($174.70 in 2024). Social Security will tell you the exact amount you'll pay for Part B in 2024.

Medicare premiums are calculated using your Modified Adjusted Gross Income (MAGI) from your tax return for two years prior to the current year. For example, if you're paying premiums in 2024, these will be based on your 2022 MAGI.

On January 1, 2024 the asset test to qualify for a Medicare Savings Program was eliminated. This means individuals can have any amount of assets and still qualify for a Medicare Savings Program. Assets are things that you own, such as bank accounts, cash, second homes and vehicles.

Roth conversions can be a great way to create tax-free income in retirement. However, if you've signed up for Medicare or plan to within a couple of years, take notice: Your Roth conversion could increase your Part B and D premiums—sometimes significantly. Read this article to understand why.

However, certain pretax deductions are exempt from the FICA tax, which includes Social Security and Medicare taxes. These pretax deductions include retirement contributions, like 401(k) accounts and individual retirement accounts, as well as life insurance premiums.

Roth IRAs have many benefits and are not just for avoiding IRMAA surcharges. Withdrawals from Roth IRAs aren't taxable, and there are no distribution requirements.