Do You Know the Connection Between Income and Medicare Costs?

As you near retirement, you're likely focused on having enough income to enjoy the years ahead. But withdrawals from traditional 401(k)s and IRAs can also impact your Medicare costs throughout retirement. **Understanding Medicare** Medicare is divided into several parts: Part A (hospital insurance — inpatient stays, skilled nursing, hospice, limited home health, typically free for most who qualify), Part B (medical insurance — doctor visits, outpatient care, preventive services, durable medical equipment), Part D (prescription drug coverage), Medigap (supplemental coverage for out-of-pocket costs in Original Medicare), and Part C / Medicare Advantage (private plans that often bundle A, B, and D, usually within a provider network, sometimes with added benefits like vision and hearing). **Understanding MAGI** Your modified adjusted gross income (MAGI) has a significant impact on Medicare costs. MAGI is your adjusted gross income minus allowable deductions and credits. In retirement, income from pensions, investment earnings, and traditional IRA/401(k) withdrawals can add up to a higher MAGI than expected, even without traditional wages. **RMD Impacts** Required minimum distributions (RMDs) — mandatory annual withdrawals from traditional retirement accounts starting at age 73 — are added to taxable income and can affect MAGI. **Higher Medicare Premiums for High Earners** Higher income can trigger an income-related monthly adjustment amount (IRMAA), added to Part B and Part D premiums, calculated annually by the Social Security Administration. Premiums and thresholds change yearly and are based on a "two-year lookback" — your MAGI from two years prior determines this year's premium, meaning an unexpected gain or distribution now could raise costs down the road. **Potential Strategies** Because Medicare premiums are tied to MAGI, it's worth working with a retirement planner before enrolling or retiring — including thinking through which accounts to draw from, and whether converting some taxable accounts to Roth accounts could help manage future taxable income and premiums. Planning for Medicare can feel overwhelming. If you need help getting started, we're here for you. This article is for informational purposes only and is not intended as financial, legal, or tax advice. Consult a qualified professional before making financial decisions. Sources: Medicare.gov, Investopedia, CMS.gov, Kiplinger