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

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. The same dollars were 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 can push modified adjusted gross income (MAGI) above the second IRMAA threshold with no warning at all. If your income sits comfortably below $109,000 as a single filer or $218,000 as a joint filer, none of what follows applies to you. Roughly 7% to 8% of Part B enrollees pay any IRMAA at all, according to the Medicare Trustees Report and CMS estimates.

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, and 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, placing him in the fourth of five IRMAA tiers for single filers.

At that income level, the $446.30 monthly Part B surcharge alone costs $5,355.60 for the year on top of the standard $202.90 base premium. The $83.30 monthly Part D surcharge adds another $999.60, layered on top of whatever the Part D plan itself charges. Together, those two surcharges account for the $6,355.20 extra annual cost. He sits one bracket below the top rung: a single filer with $500,000 or more of MAGI faces a total Part B premium of $689.90 per month.

Filing Status Rewrites the Whole Story

Change one variable and the surcharge disappears entirely. A married couple filing jointly with the same $210,000 household MAGI falls under the $218,000 joint threshold and pays the standard premium. That gap also explains what planners call 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 territory once Medicare catches up to the first return filed under those tighter single thresholds.

Why SSA-44 Will Not Rescue Him

Retirees routinely assume they can appeal any IRMAA determination. The appeal process is real, but the qualifying events are narrow. Form SSA-44 recognizes only specific life-changing events: marriage, divorce, death of a 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, and paying off a mortgage is not on the list either. If he had also stopped part-time work in 2025 and his income genuinely dropped, he could file SSA-44 to document that separate event. The withdrawal itself does not qualify, regardless of its size.

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, though it could also spread the surcharge across two future premium years.
• Read the SSA determination notice carefully. If it cites the wrong tax year or the IRS transcript contains an error, 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 keep in mind that the officially confirmed 3.6% Social Security COLA for 2027, the largest increase since 2023, 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.

Editor’s note: This article has been updated to reflect the Social Security Administration’s official 2027 COLA announcement of 3.6%, issued October 14, 2026, correcting the earlier estimate of 3.3%. The IRMAA enrollee figure has also been refined to the 7% to 8% range cited in the Medicare Trustees Report and CMS data.

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