He Pulled $150,000 From His 401(k) at 66 to Pay Off the House. Two Years Later, Medicare Billed Him as Though He’d Earned It Twice
He paid off his mortgage and closed the chapter, but Medicare had a different timeline in mind. A single retirement decision quietly set a billing clock in motion that he would not hear tick for two full years.
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A single retiree, age 66, pulled $150,000 from a traditional 401(k) in 2024 to erase his mortgage. He was past 59½, so no early-withdrawal penalty applied. He paid ordinary income tax on the distribution when he filed the next spring and moved on. Two years later, his Medicare bill arrived carrying an extra $6,355.20 for 2026. Same dollars, taxed once by the IRS and then priced again by Medicare through the income-related surcharge known as IRMAA.
For a single filer like him, a one-time withdrawal, home sale, Roth conversion, or severance check could push modified adjusted gross income (MAGI) above the second IRMAA threshold. If your income sits comfortably below $109,000 as a single filer or $218,000 as a joint filer, none of what follows touches you. Only about 8% of Part B enrollees pay any IRMAA at all.
How a One-Year Income Spike Becomes a Two-Year Medicare Bill
IRMAA uses a two-year lookback. The Social Security Administration prices your 2026 Part B and Part D premiums off the MAGI on your 2024 return, the most recent one on file when the determination is made. That is the “echo” that catches retirees off guard: a decision made in the calendar year they turned 66 lands on the premium statement the year they turn 68.
MAGI for IRMAA is adjusted gross income plus tax-exempt interest. A traditional 401(k) distribution flows through AGI in full, minus any previously taxed basis. Using the withdrawal to pay down a mortgage does not reduce the taxable amount. There is no rollover, no exclusion, no offset.
Running the 2026 Numbers on a $210,000 MAGI
The retiree in the scenario normally reports about $60,000 of MAGI from Social Security, a small pension, and investment income. Adding the $150,000 traditional 401(k) distribution lifts his 2024 MAGI to roughly $210,000.
As a single filer in 2026, the $446.30 Part B surcharge alone costs $5,355.60 for the year. The $83.30 Part D surcharge adds another $999.60, layered on top of whatever the Part D plan itself charges. This is the second-highest surcharge band. He is a single-payer decision away from the top rung at $500,000 MAGI, where Part B rises to $689.90 per month.
Filing Status Rewrites the Whole Story
Change one variable and the surcharge disappears. A married couple filing jointly with the same $210,000 household MAGI sits under the $218,000 joint threshold and pays the standard premium. This is also the mechanic behind the survivor trap: when one spouse dies, the survivor files single, and the single brackets are roughly half the joint ones. A retiree whose income barely changed can drift into IRMAA once Medicare catches up to the first return filed under the tighter single thresholds.
Why SSA-44 Will Not Rescue Him
Retirees routinely assume they can appeal any IRMAA hit. They cannot. Form SSA-44 only recognizes specific life-changing events: marriage, divorce, death of spouse, work stoppage or reduction, loss of income-producing property, loss of pension, or an employer settlement. A voluntary 401(k) distribution is not on the list. Paying off a mortgage is not on the list. If he had also stopped part-time work in 2025 and his income truly dropped, he could file SSA-44 and document that separate event. The withdrawal itself does not qualify no matter how large.
Three Actions That Matter
- Model MAGI, not the mortgage balance. Before any large pretax withdrawal, add the taxable amount to your baseline income and compare the total to the current single or joint IRMAA thresholds. Splitting a distribution across December and January can keep each year in a lower tier, but it could potentially spread the surcharge across two future premium years.
- Read the SSA determination notice. If it cites the wrong tax year or the IRS transcript is wrong, request a new determination. That is a separate appeal path from SSA-44 and it works.
- Budget both premiums. Part B and Part D each carry their own IRMAA. Plan for the combined annual cost and remember that any 2027 COLA, tracking near 3.3%, will be partly absorbed by whatever surcharge lands in the mailbox.
He withdrew the money once and paid off the house once. The bill arrived twice, first from the IRS and then, on a two-year delay, from Medicare. IRMAA is only one of several premium traps hiding inside a Medicare statement, and we mapped the rest of them in a free guide to the surcharges and coverage gaps most retirees miss.
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Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
