At 63, He’ll Pull $60,000 From His IRA to Wipe Out Credit-Card Debt. Medicare Will Charge Him $974 for the Rescue When He Turns 65
Wiping out $60,000 in credit-card debt with a single IRA withdrawal feels like a clean escape, but a hidden cost tied to that decision waits two years down the road and arrives right when Medicare coverage begins.
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He’s 63, single, and makes about $60,000 a year. He also carries a lot of credit-card balances. This fall he takes out $60,000 from his traditional IRA, clears every card and feels the weight come off right away. The relief is real. So is a bill that won’t show up until he turns 65.
Why a Card Payoff Shows Up on a Medicare Bill
Every dollar he takes from a traditional IRA counts as ordinary income if the account holds only pre-tax money. For Medicare’s surcharge, the Income-Related Monthly Adjustment Amount (IRMAA), Social Security looks at modified adjusted gross income (MAGI): adjusted gross income (Form 1040, line 11) plus tax-exempt interest (line 2a). Municipal bond interest feels tax-free, but it counts here too. The withdrawal raises his MAGI to $120,000. He’s past 59.5, so he owes no early-withdrawal penalty, though the withdrawal is still taxable. The cost shows up somewhere else too.
Social Security generally sets Medicare’s income surcharge using your tax return from two years earlier.
What $120,000 of Income Costs at Enrollment
Under 2026 rules, a single filer with MAGI of $109,000 or less pays the standard Part B premium of $202.90 a month and no surcharge. Above $109,000 and up to $137,000, the premium rises to $284.10, an $81.20 monthly surcharge. Over a year, that comes to $974.40. Add a Part D plan and the first-tier surcharge adds another $14.50 a month, or $174 over a full year. That brings his combined Part B and Part D surcharge to $1,148.40 at 2026 rates. If he starts Medicare partway through 2028, he pays the surcharge only for the months he is enrolled.
Most retired people never pay these surcharges. CMS says roughly 8% of Part D enrollees pay IRMAA. If your regular income plus any withdrawal remains at or below $109,000 single, or $218,000 joint, the standard insurance premiums applies. CMS will adjust the 2028 brackets for inflation, so treat these 2026 figures as the working estimate.
Form SSA-44 won’t delete this surcharge. Social Security lists the qualifying life-changing events as marriage, divorce, the death of a spouse, loss of income, and an employer settlement payment. Choosing to take money out of an IRA isn’t one of them. If he retires before 65 and his income falls, the work stoppage can let Social Security use a more recent MAGI figure instead. The IRA withdrawal still counts if it is part of the newer income figure Social Security uses.
Pay Off the Cards, Change the Calendar
Paying down expensive card debt can still make sense. The Federal Reserve’s latest data put the average rate on credit-card accounts actually being charged interest at 22.36% in August. On $60,000, that’s roughly $13,416 a year, or $1,118 a month. One month of interest costs more than a full year of the first-tier Part B surcharge at 2026 rates.
Waiting for the lookback year to pass doesn’t help. Once he turns 63, the income from each year sets a Medicare insurance premiums he will pay. If he holds off until 2027, he pays the surcharge in 2029 instead and covers a year of card interest on the way. Leaving the debt in place is the priciest choice he has.
The real fix costs nothing: take the money over two tax years.
Three Moves to Model Before the Withdrawal
- Split the withdrawal across December 31. If his other income stays at $60,000, taking $30,000 in December 2026 and $30,000 in January 2027 leaves each year’s MAGI at about $90,000. Using 2026 thresholds as the yardstick, that stays below the first IRMAA line. He could also take up to $49,000 in 2026 and the balance in January, but leave some cushion for other income.
- Use cash that stays out of MAGI first. Cash already sitting in savings counts as zero income. In a brokerage account, his original investment comes back tax-free, but any gain can count toward MAGI. Contributions to a Roth IRA come out tax-free and don’t count toward MAGI. Every dollar he can take from these sources without creating taxable income means one less IRA dollar on his 2026 return.
- Keep other income out of the same years. Map out his expected 2026 and 2027 income before he moves any money. A home sale, a large capital gain or a lot of municipal bond interest added on top of the IRA money can push him over the line even after he splits the withdrawal.
CMS will publish the 2028 brackets in late 2027. When they come out, check them against his 2026 MAGI. If his income lands within a few thousand dollars of $109,000, a fee-only planner who models retirement income for taxes can test whether moving one more withdrawal across the year-end line saves him the $974.40.
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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.
