If I take a withdrawal from my Roth IRA, will it count as income that can trigger an IRMAA penalty on my premiums for Medicare Parts B and D? What about a withdrawal from a traditional IRA?
Taking tax-free Roth withdrawals won’t affect your Medicare premiums. But the distributions you take from traditional IRAs count as income in the calculation that determines those premiums.
Your Medicare premiums are based on the modified adjusted gross income (MAGI) you reported in the most recent tax return available to the Social Security Administration, which is typically two years old. In other words, your 2018 premiums will be based on your 2016 tax return. MAGI includes tax-exempt income like municipal bond interest, but it doesn’t include tax-free Roth IRA withdrawals.
People who reported higher income in 2016 will pay more in 2018 for Medicare Part B (for doctor visits and outpatient services, and for Medicare Part D (for prescription drugs). In tax jargon, this extra charge is called an Income-Related Monthly Adjustment Amount, or IRMAA.
The standard 2018 Medicare Part B premium will be $134 a month. But individuals who reported more than $85,000 a year of modified adjusted gross income in 2016, and married couples filing jointly who reported more than $170,000 a year will pay IRMAA. Depending on their income, their Part B premiums could range from $187.50 a month all the way up to $428.60 a month.
There’s only one way to avoid IRMAA: You can appeal to have the surcharge waived if your current income is lower than your 2016 income because of a life-changing event like retirement, a divorce, or the death of a spouse.
THE BOTTOM LINE
In most cases, your Medicare premiums are based on the income you reported on the tax return you filed two years ago.