I’m 67 And Took $85K From My 401(k) For My Son’s Down Payment — Then My Medicare Premium Went Up. Is This Permanent?

Having a hefty sum set aside in a 401(k) makes a literal wealth of financial choices possible. But take out too much money at once, and you’ll soon find Uncle Sam’s IRS eagle poking his beak into your nest egg.

So if, say at 67, you decide to finance your devoted son’s 20% down payment on his first home, priced at $425,000, does that mean the government reserves the right to demand its share several times over?

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Here’s how this works: The government monitors your taxable income — and retirement account distributions are part of that.

Depending on the amount you withdraw, part of your income could land in a higher marginal tax bracket — and no, your neighborhood IRS agent doesn’t care whether you’ve stopped working.

Income thresholds extend to Medicare, too. Exceeding a certain modified adjusted gross income can cause a spike in your premiums. That means you could end up paying for that withdrawal more than once.

But is there a way to ensure it doesn’t happen again?

The answer depends on how savvy you are with your finances.

Let’s say you collect a monthly Social Security check of $1,925, the average for retired workers as of November 2024 — which comes to $23,100 annually.

Since you’re still in your 60s, you aren’t yet required to withdraw money out of your retirement accounts each year.

So if that $23,100 is your only income — and it’s enough to live on — and you file as a single, individual taxpayer, you won’t pay any federal taxes. The IRS only starts claiming tax on Social Security when 50% of your benefit for the year and any other income combined totals more than $25,000.

But if you pull out $85,000 for that down payment for your son, things change. The IRS formula for taxing Social Security would add half of your benefit to the $85,000, which comes to $96,550. That means you’d exceed the $34,000 threshold where up to 85% of your benefits will be taxed. Ouch.

Now see if you can follow this, non-accountants: 85% of $23,100 means $19,635 of your Social Security benefits is taxable, which added to your $85,000 withdrawal gives us $104,635 of taxable income for the year.

That means you’ll pay marginal tax rates until you hit the 24% tax bracket for incomes over $100,525. And that income level would trigger a surcharge on your Medicare premium for that tax year.

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A large cash infusion can change your Medicare income status to the point where you’ll pay an income-related monthly adjustment amount (IRMAA).

Medicare Part B and D premiums are calculated based on individual tax return numbers, and at below $103,000, the monthly premium for Part B comes to $174.70 in 2024, with no extra charge for Part D.

But since you’re now over that number, your monthly premium would jump to $244.60, plus an extra $12.90 for Part D.

Keep in mind, IRMAA premiums are based on tax returns from two years prior. So the 2024 numbers above would be based on your income from 2022. That means your income from 2024 will only affect your 2026 monthly premium.

Fortunately, the income thresholds are increasing. As of 2025, the base income is increasing to $106,000, meaning those with modified adjusted gross incomes less than that in 2023 won’t be hit with an IRMAA. But the standard monthly premium will increase to $185.

By 2026, when you’d face any potential IRMAA for your 2024 tax return, there’s a chance you may not see your premium jump at all — as long as you don’t withdraw another down payment.

If you’re keen on reducing your modified adjusted gross income, it’s a good idea to consider working with a financial advisor or tax advisor for the right guidance.

Withdrawing smaller portions of money over several years is an obvious and easy place to start when lowering total income on your annual tax return.

But retirees in a similar situation can get there by claiming every exemption the law allows, from qualified charitable donations from an IRA down the line to home mortgage interest.

In any case, you can at least count on this: The Medicare premium hike came from a one-time event of tapping your retirement fund for a large sum.

Assuming your withdrawals return to normal, you won’t have to endure this financial drama again — unless your son asks for help with the mortgage payments.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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