Will IRA withdrawals affect my Medicare premiums?

Dear Rusty: I am a member of AMAC and learn so much from the Ask Rusty column. I hope you can give me some information about a question that has come up in my family. My husband is retired and has reached full retirement age. He is considering withdrawing money from an IRA to pay off our mortgage. We are wondering what, if any, penalties may be incurred on Social Security, Medicare, and income tax. Thank you for your help in this matter. Signed: Concerned Taxpayer

Dear Concerned: Thank you for contacting the AMAC Foundation Social Security Advisory Service. Regarding your question on the impact of withdrawing IRA funds, there is no impact to your husband’s gross Social Security benefit. The amount withdrawn, of course, is considered ordinary income for federal income tax purposes, and will need to be included as such on your federal income tax return and will therefore affect your federal income tax liability when you file the return.

Depending on the amount withdrawn, there could be an impact to the Medicare premium due to the Income-Related Monthly Adjustment Amount provision. Assuming you file jointly, you will pay a higher Medicare Part B premium if your modified adjusted gross income is above certain thresholds (i.e., more than $103,000 for an individual and $206,000 for a married couple). Note that Medicare’s procedures will not note this income change for two years, so if you make the withdrawal in 2024 it will not trigger the increases until your 2026 Medicare premiums. A change to your Medicare premium might also result in a change to your net Social Security payment at that time (since Medicare is automatically deducted from your Social Security payment).

Also depending on the amount withdrawn, you may have to pay an additional amount on top of your Medicare Part D premium. The Part D adjustment amount is calculated based on a percentage of the Part D national base beneficiary premium, not on a percentage of the plan premium.

The Social Security Administration mails letters to beneficiaries who currently pay a Part B Income-Related Monthly Adjustment Amount and, according to the Centers for Medicare and Medicaid Services, are in a Part D plan. The letter explains the additional Part D amount, and how exactly Social Security will collect it. You can contact SSA at (800) 772-1213 or your local SSA agency if you have any further questions about your Part D IRMAA premium.