Do Roth IRA Distributions Affect Medicare Premiums?
Understand the connection between retirement income and Medicare costs. Not all sources, like Roth IRA withdrawals, are factored into your premium calculation.
A retiree’s income can directly influence their monthly Medicare Part B and Part D premiums, leading to questions about how different retirement funds are treated. A primary concern is whether distributions from a Roth Individual Retirement Arrangement (IRA) are counted as income for Medicare purposes. The answer depends on the mechanics of Medicare premium calculations and the specific tax rules for Roth IRAs.
How Medicare Premiums Are Calculated
Higher-income beneficiaries pay an additional charge on top of their standard monthly Medicare premium. This surcharge is the Income-Related Monthly Adjustment Amount (IRMAA) and applies to both Medicare Part B (outpatient care) and Part D (prescription drugs). For 2025, the standard Part B premium is $185.00. The Social Security Administration determines who pays IRMAA based on a specific income figure.
The income figure used is your Modified Adjusted Gross Income (MAGI). For Medicare, MAGI is your Adjusted Gross Income (AGI) from your federal tax return plus any tax-exempt interest you earned, such as from municipal bonds. AGI includes sources like wages, self-employment income, dividends, capital gains, and distributions from traditional retirement accounts like 401(k)s or traditional IRAs.
The IRMAA calculation uses a two-year lookback period, meaning your current year’s premiums are based on the MAGI from your tax return two years prior. For example, 2025 Medicare premiums are determined by your 2023 MAGI. The Social Security Administration reviews this annually, so your premiums can change each year based on past income.
IRMAA surcharges are applied on a sliding scale with several income brackets. For 2025, surcharges begin for individuals with a 2023 MAGI over $106,000 and for married couples filing jointly with a MAGI over $212,000. The additional monthly Part B amount ranges from $74.00 to $443.90, with a smaller corresponding surcharge for Part D, depending on the income tier.
Tax Treatment of Roth IRA Withdrawals
The tax rules for Roth IRA withdrawals differ from traditional retirement accounts, hinging on whether a withdrawal is a “qualified distribution.” A qualified distribution from a Roth IRA is entirely free from federal income tax and penalties. To be considered qualified, a distribution must satisfy two conditions.
First, the withdrawal must occur at least five years after the Roth IRA was first funded, which is known as the five-year holding period. The clock starts on the first day of the tax year for which the initial contribution was made. Second, the withdrawal must be for a qualifying reason, such as reaching age 59½, permanent disability, or death of the account owner.
A withdrawal that does not meet both requirements is a “non-qualified distribution.” The tax treatment for these follows IRS ordering rules, where direct contributions are withdrawn first. Because Roth IRA contributions are made with after-tax money, their withdrawal is always tax-free and penalty-free.
After contributions are depleted, subsequent withdrawals are taken from converted funds, if any, and then from earnings. Only the earnings portion of a non-qualified distribution is subject to ordinary income tax and a potential 10% early withdrawal penalty.
Impact of Roth IRA Activity on MAGI
Because qualified Roth IRA distributions are not taxable income, they are not included in your AGI. As a result, qualified distributions do not increase your MAGI and will not cause an increase in your Medicare Part B or Part D premiums.
For non-qualified distributions, only the taxable portion affects your income. Per the ordering rules, tax-free contributions are withdrawn first. Only after all contributions are depleted would you withdraw taxable earnings, which would then be added to your AGI and potentially impact your MAGI.
Roth Conversions
A Roth conversion is different from a distribution and has a direct impact on your income. When you convert funds from a pre-tax retirement account, like a traditional IRA or 401(k), to a Roth IRA, the converted amount is considered taxable income. This amount is added to your AGI in the year of the conversion.
This increase in AGI directly raises your MAGI for the year of the conversion. Due to the two-year lookback rule, a large Roth conversion can lead to higher Medicare premiums two years later. For example, a conversion in 2025 will affect the MAGI used for 2027 premiums, potentially triggering an IRMAA surcharge.
Other Income Sources That Influence Medicare Premiums
While qualified Roth IRA distributions do not affect Medicare premiums, many other common sources of retirement income are included in the MAGI calculation. These other income streams can increase your MAGI and potentially trigger an IRMAA surcharge.
Sources that will increase your MAGI include:
- Distributions from traditional IRAs, 401(k)s, 403(b)s, or other tax-deferred retirement plans.
- Income from pensions and most annuities.
- Realized capital gains from the sale of investments, such as stocks or real estate.
- The taxable portion of your Social Security benefits.
- Interest and dividends earned in taxable investment accounts.
- Tax-exempt interest from sources like municipal bonds, which is added back to AGI for the MAGI calculation.
Managing these income sources is part of planning for potential changes in your Medicare costs.