Withdrawing from Retirement: A Double-Edged Sword

I recently withdrew $95,000 from my retirement plan, thinking it would provide a much-needed financial boost. However, I soon realized that this decision had unintended consequences. Not only did it push me into a higher tax bracket, but it also increased my Medicare premiums. The question now is: is this increase permanent?

The Impact on Tax Brackets

Before the withdrawal, I was comfortably in the 22% tax bracket. However, with the additional income from the withdrawal, I was suddenly catapulted into the 24% bracket. This meant that not only was I paying more in taxes on the withdrawn amount, but my overall tax liability had increased. To make matters worse, the increased income also affected my Medicare premiums.

The Impact on Medicare Premiums

In 2025, beneficiaries with incomes over $106,000 (for single filers) or $212,000 (for joint filers) will pay a higher total Medicare Part B premium amount depending on their income. This is known as the Income-Related Monthly Adjustment Amount (IRMAA). The Centers for Medicare and Medicaid Services (CMS) have yet to release the 2025 IRMAA surcharge amounts for Part B, but the basic Part B premium for 2025 is $185.00, an increase of $10.60 from 2024.

| Modified Adjusted Gross Income for Individual Filers | Modified Adjusted Gross Income for Joint Filers | Total Monthly Premium Amount |
| --- | --- | --- |
| Less than or equal to $106,000 | Less than or equal to $212,000 | $185.00 |
| Greater than $106,000 and less than or equal to $133,000 | Greater than $212,000 and less than or equal to $266,000 | $259.00 |
| Greater than $133,000 and less than or equal to $167,000 | Greater than $266,000 and less than or equal to $334,000 | $370.00 |
| Greater than $167,000 and less than or equal to $200,000 | Greater than $334,000 and less than or equal to $400,000 | $480.90 |
| Greater than $200,000 and less than $500,000 | Greater than $400,000 and less than $750,000 | $591.90 |
| Greater than or equal to $500,000 | Greater than or equal to $750,000 | $628.90 |

Is the Increase Permanent?

The increase in Medicare premiums due to the IRMAA is based on the income reported two years prior. This means that the 2025 IRMAA brackets are based on your MAGI from 2023. If your income in 2023 exceeded the threshold for IRMAA, you will pay a higher total Medicare Part B premium amount depending on your income in 2025.

However, it is important to note that the IRMAA is not a permanent increase in your Medicare premiums. If your income drops below the threshold for IRMAA in subsequent years, your Medicare premiums will also decrease. For example, if you withdraw from your retirement plan in 2023 and your income exceeds the threshold for IRMAA, you will pay a higher Medicare premium in 2025. However, if your income drops below the threshold for IRMAA in 2024, your Medicare premiums will decrease in 2026.

Conclusion

Withdrawing from your retirement plan can have unintended consequences, such as pushing you into a higher tax bracket and increasing your Medicare premiums. However, it is important to note that the increase in Medicare premiums due to the IRMAA is not a permanent increase. If your income drops below the threshold for IRMAA in subsequent years, your Medicare premiums will also decrease. It is important to carefully consider the potential consequences of withdrawing from your retirement plan before making a decision.