Retirees drawing from traditional IRAs before Medicare may face unexpected premium surcharges due to a two-year income lookback rule.
A couple withdrawing $1.2 million from a traditional IRA at age 64 to cover pre-Medicare expenses faced a $284 monthly Part B premium at 66, up from $203. The increase stems from Medicare’s use of modified adjusted gross income (MAGI) from two years prior to set premiums.
The surcharge applies as a cliff: joint MAGI above $218,000 triggers the higher rate. Many retirees unaware of the lookback rule encounter the premium jump unexpectedly, as bridge-year withdrawals directly impact future costs.
Alternatives like Roth accounts, HSAs, or taxable brokerage funds can help avoid MAGI spikes without reducing spending. The scenario is common among early retirees transitioning to Medicare.