Early Retirement Withdrawal Order to Keep MAGI Below IRMAA Thresholds

Strategic Basics: How IRMAA Works and Why Your First 3 Years Matter

An early retirement withdrawal order is a strategic sequence for taking money from different retirement accounts in the first years after leaving the workforce, designed to keep Modified Adjusted Gross Income (MAGI) below Medicare's Income-Related Monthly Adjustment Amount (IRMAA) thresholds. Getting this order wrong can cost retirees thousands in unnecessary premium surcharges.

IRMAA is a surcharge added to Medicare Part B and Part D premiums for beneficiaries whose MAGI exceeds certain thresholds. The Social Security Administration uses a two-year lookback: your 2026 Medicare premiums are based on your 2023 tax return.¹ This lag creates both a trap and an opportunity.

For early retirees aged 60-63, the first three years before Medicare enrollment are a strategic window. During this period, you control your MAGI through withdrawal choices without the complication of Social Security income. Every dollar you pull from a traditional 401(k) or IRA adds to your MAGI. Every dollar from a Roth IRA does not.²

The stakes are concrete. IRMAA surcharges for 2024 range from $74.90 to $443 per month per person, depending on the MAGI tier.³ For a married couple both on Medicare, that's up to $10,632 per year in extra premiums — entirely avoidable with proper sequencing.

Why Your Withdrawal Order Determines Medicare Premiums

The order you choose determines which dollars count toward MAGI. Traditional 401(k) and IRA withdrawals are fully included in MAGI in the year distributed.⁴ Roth IRA withdrawals are excluded. Taxable brokerage account withdrawals include only realized capital gains, not the full amount.

Consider a retiree who needs $60,000 per year in living expenses. If they take it all from a traditional IRA, their MAGI increases by the full $60,000.⁵ If they take $30,000 from a Roth IRA and $30,000 from a taxable brokerage account with a $10,000 cost basis, their MAGI increases by only $20,000 — the realized gain on the brokerage sale.

This difference can mean staying under a $206,000 IRMAA threshold versus exceeding it and triggering a $74.90 monthly surcharge per person.¹ Over a 20-year retirement, that single decision saves $17,976 per person.

Mapping Your MAGI Against 2026 IRMAA Brackets

The 2025 IRMAA brackets, based on 2023 MAGI, show the tiers early retirees should target:

Source: CMS 2025 Medicare Parts A & B Premiums and Deductibles Fact Sheet¹

For a married couple, staying under $206,000 MAGI saves $1,063 per year in combined Part B and Part D surcharges². Staying under $258,000 saves $2,668 per year². These are per-person figures, so a couple doubles the savings.

The Tax Torpedo: How Social Security and Withdrawals Interact

The tax torpedo describes a situation where additional retirement income pushes a retiree into a higher marginal tax rate because Social Security benefits become partially taxable. For early retirees aged 60-63, this is a future concern — but the withdrawal decisions made now determine whether the torpedo strikes later.

Social Security benefits become taxable when provisional income (MAGI plus half of Social Security benefits) exceeds certain thresholds — for example, $25,000 for single filers or $32,000 for married couples filing jointly.⁵ Up to 85% of benefits can become taxable.

The strategic implication: using Roth withdrawals in the early years preserves the ability to manage MAGI once Social Security begins. A retiree who drains their Roth IRA first loses the tax-free buffer that could keep provisional income below the taxation thresholds later.

Suppose a retiree starts Social Security at 67 with $30,000 in annual benefits. If they have no other income, none of those benefits are taxable. If they need $20,000 from a traditional IRA, their provisional income becomes $35,000, and up to 85% of benefits become taxable¹. A Roth withdrawal of the same $20,000 keeps provisional income at $15,000 — zero taxable benefits².

Roth Conversions Before Medicare: A Five-Year Window

The years between early retirement and Medicare enrollment offer a unique opportunity for Roth conversions at potentially lower tax rates. A Roth conversion moves money from a traditional IRA to a Roth IRA, paying income tax on the converted amount in the year of conversion.

The five-year rule matters here: converted funds must remain in the Roth IRA for five years before they can be withdrawn tax-free.² For a retiree at age 60, a conversion completed at 61 becomes available for tax-free withdrawal at 66 — just as Medicare begins.

The strategy works best when taxable income is naturally low. Suppose a retiree has $40,000 in living expenses covered by a taxable brokerage account and a small Roth IRA. Their MAGI might be $15,000. They can convert a portion of a traditional IRA to a Roth IRA, paying tax on total income that stays within the 12% federal bracket — for example, converting $50,000 would bring MAGI to $65,000, well under the single IRMAA threshold of $103,000.³

This conversion reduces future Required Minimum Distributions (RMDs), which begin at age 73 under SECURE 2.0.⁶ Lower RMDs mean lower MAGI in later years, reducing the risk of IRMAA surcharges in the 80s.

Sequence of Withdrawals: Taxable, Tax-Deferred, Then Roth

The standard early retirement withdrawal order follows three tiers:

Tier 1: Taxable brokerage accounts. Withdraw from taxable accounts first. Only realized capital gains count toward MAGI, not the full withdrawal amount. A retiree selling $50,000 in stock with a $30,000 cost basis adds only $20,000 to MAGI. This preserves tax-advantaged accounts for later.

Tier 2: Tax-deferred accounts (traditional 401(k) and IRA). After taxable accounts are depleted, use traditional accounts. Every dollar withdrawn adds to MAGI dollar-for-dollar. The goal is to withdraw only enough to stay under the next IRMAA threshold.

Tier 3: Roth IRA. Withdraw from Roth accounts last. These withdrawals are tax-free and do not increase MAGI.² Roth funds serve as the buffer that keeps MAGI controlled in high-spending years.

A retiree with $500,000 in taxable accounts, $800,000 in traditional IRAs, and $200,000 in Roth IRAs might spend taxable accounts in years 60-62, then use traditional IRA withdrawals in years 63-65 while keeping MAGI under $103,000, and reserve Roth withdrawals for years when a large expense would otherwise push MAGI over the threshold.

Spousal Coordination: Coordinating Withdrawals for Two Incomes

Married couples face a more complex calculation because IRMAA thresholds apply per person, but MAGI is calculated on the joint return. Both spouses' Medicare premiums are affected by the same MAGI figure.

The key insight: if one spouse has significantly lower lifetime earnings, their Medicare premiums are still based on the couple's joint MAGI. A high withdrawal year for one spouse triggers surcharges for both.

Suppose Michael, 62, has $1.2 million in traditional IRAs, and Jennifer, 61, has $200,000 in Roth IRAs. If they need, for example, $80,000 per year, withdrawing from Michael's IRA adds that full amount to joint MAGI. Withdrawing from Jennifer's Roth adds nothing. The optimal sequence uses Jennifer's Roth first, then Michael's taxable accounts, then his traditional IRA — keeping joint MAGI under $206,000.

For couples with a significant age gap, the younger spouse's Medicare enrollment may be years away. Withdrawals in those years can be more aggressive from traditional accounts, since IRMAA surcharges only apply once the younger spouse enrolls.

The IRMAA Cliff: Staying Under the Threshold in High-Income Years

IRMAA is a cliff, not a gradual slope. Exceeding a threshold by $1 triggers the full surcharge for that tier. A married couple with MAGI of $206,001 pays $1,063 more per year than a couple with MAGI of $206,000.¹

This cliff creates specific planning opportunities. Suppose a retiree expects MAGI of $210,000 from a traditional IRA withdrawal and capital gains. They have two options: reduce the withdrawal by roughly $4,000 to stay under the $206,000 threshold, or accept the surcharge and withdraw more aggressively.¹

The breakeven calculation favors staying under the threshold in most cases. For example, reducing a withdrawal by roughly $4,000 to stay under the IRMAA threshold saves approximately $1,063 in Medicare premiums — a return of about 26.6% on the foregone withdrawal. The retiree can withdraw that amount from a Roth IRA instead, paying no tax and adding nothing to MAGI.

For years when a large expense is unavoidable — a new roof, a car purchase, or a one-time capital gain — the strategy shifts to accepting the surcharge and maximizing the withdrawal. Paying one year of IRMAA surcharges to access, for example, $50,000 from a traditional IRA may be cheaper than selling appreciated assets in a taxable account.

Your Next Step

Review your current account balances and estimate your annual living expenses for the first three years of retirement. Map those expenses against the IRMAA brackets for your filing status. Identify which accounts you would draw from first and calculate the resulting MAGI. If your projected MAGI exceeds $103,000 (single) or $206,000 (married), adjust your withdrawal sequence to use more Roth funds or taxable account gains. Run this projection for each of the first three years separately — a single high-income year can trigger surcharges for two years due to the lookback rule. Smart Money After 60 provides a withdrawal sequencing worksheet for subscribers to model these scenarios.