Key Takeaways:
- TSP withdrawals and most retirement income sources are counted in Medicare’s income calculation, potentially raising premiums for federal retirees.
- Medicare premiums are determined by Modified Adjusted Gross Income (MAGI), with higher incomes—often from TSP or RMDs—leading to IRMAA surcharges.
What Counts as Income for Medicare?
Rules for Income Consideration
Medicare bases premium calculations on your Modified Adjusted Gross Income (MAGI), not just on your taxable income. MAGI includes your adjusted gross income (AGI) from your federal tax return, plus any tax-exempt interest. For federal retirees, this figure is crucial because increases in MAGI can gradually lead to higher Medicare Part B and D premiums due to income-related adjustments.
The Social Security Administration (SSA) checks your MAGI from two years prior to determine current Medicare premiums. For example, your 2026 Medicare premium is typically calculated using your 2024 federal tax return.
Types of Retirement Income Included
Retirement income that counts towards MAGI often comes from several sources:
- Withdrawals from tax-deferred retirement plans, such as the Thrift Savings Plan (TSP), traditional IRAs, and other employer-sponsored accounts.
- Federal pensions (CSRS or FERS annuity payments).
- Social Security benefits (with the portion that’s taxable).
- Capital gains and interest, including tax-exempt interest.
- Required minimum distributions (RMDs) from retirement accounts.
Roth IRA qualified distributions generally are not counted toward MAGI, but Roth TSP withdrawals may count if they include non-qualified earnings.
How Do TSP Withdrawals Affect Medicare Premiums?
Understanding TSP and Taxable Distributions
The Thrift Savings Plan allows federal employees and retirees to set aside pre-tax dollars for retirement. When you take withdrawals from a traditional TSP account, those distributions are taxable in the year you receive them and count toward your MAGI. This also applies to required minimum distributions (RMDs) starting at the IRS-determined age.
Roth TSP withdrawals are only included in income if they are not qualified distributions. For most retirees, after the five-year rule and reaching age 59½, qualified Roth TSP withdrawals are not taxable and do not impact MAGI.
Reporting TSP Withdrawals for Medicare
TSP withdrawals are reported on your federal tax return and are included when SSA reviews your MAGI to set your Medicare Part B and D premiums. This means a large withdrawal—such as a lump-sum for major expenses—can increase your reported income for that year and trigger higher Medicare costs two years later. It’s important to remember that the timing and amount of your TSP withdrawals can directly affect future Medicare expenses.
What Is IRMAA and Who Pays It?
Definition and Purpose of IRMAA
The Income-Related Monthly Adjustment Amount (IRMAA) is an additional premium applied to Medicare Part B and D for individuals whose MAGI exceeds certain thresholds. The IRMAA is not a penalty but rather an adjustment reflecting the policy that higher-income beneficiaries contribute more to Medicare program costs.
IRMAA surcharges are recalculated each year based on IRS data, so fluctuations in your income—whether due to retirement, portfolio changes, or large withdrawals—can move you into or out of IRMAA brackets.
TSP Income’s Role in IRMAA Determination
Since TSP withdrawals are part of your taxable income, significant distributions can push your MAGI above the IRMAA thresholds. For instance, taking a one-time large TSP withdrawal for a home purchase can result in a higher IRMAA bracket two years later, temporarily increasing your Medicare premiums. Routine, moderate TSP distributions may keep you within lower brackets, depending on your total MAGI and other income.
How Are Medicare Premiums Calculated for Retirees?
Official Premium Brackets Overview
Medicare Part B and Part D premiums are set by law, and the standard premium applies to the majority of beneficiaries. However, if your MAGI exceeds the legislated thresholds, you will pay a higher amount calculated on a sliding scale. These brackets are updated annually, and current figures are published by Medicare and the SSA. Each bracket corresponds to a specific MAGI range, with surcharges applying in steps as income increases.
Income Thresholds for Premium Increases
For 2026, beneficiaries whose 2024 MAGI exceeds the first income threshold will pay more for Medicare. While exact dollar amounts are set each year, all income sources counted in MAGI—including TSP withdrawals, RMDs, pension, and investment income—are used to determine your placement within these premium categories. It’s critical to note that small increases in income can move you into a new bracket, raising your Part B and Part D costs for the following year.
Do RMDs and Other Withdrawals Raise Medicare Costs?
Required Minimum Distributions and Income Reporting
Once you reach the age at which RMDs are mandatory, each distribution counts as taxable income and is included in your MAGI. This automatic withdrawal from your TSP or traditional IRA is unavoidable. If your combined income—including RMDs—pushes you over IRMAA thresholds, you may see a corresponding rise in your Medicare premiums.
Periodic vs. Lump-Sum Withdrawals
How you withdraw from TSP and similar accounts can influence your MAGI profile. Periodic, regular withdrawals are likely easier to plan for and may keep your income more predictable year to year. Large lump-sum withdrawals, by contrast, can create a sharp, temporary increase in income, possibly leading to IRMAA surcharges for a single year. Weigh the impact of withdrawal timing with awareness of Medicare’s two-year income lookback.
Can You Avoid a Medicare Premium Increase?
Appeal Process for Income-Related Adjustments
Medicare recognizes certain life changes that can reduce your income and provides an appeals process. If you experience a qualifying event—such as retirement, divorce, or loss of income—you may request a review of your IRMAA determination. This involves submitting documentation to SSA showing that your reported MAGI no longer reflects your current financial reality.
Temporary vs. Ongoing Income Changes
An isolated large withdrawal (for example, a one-time TSP lump-sum) may cause only a temporary premium increase. Once your MAGI returns to lower levels, your Medicare premiums usually decrease accordingly in future years. If your income drops due to permanent changes, you can request a new assessment rather than wait for the automatic two-year lookback to adjust premiums.
FAQs About TSP, Retirement Income, and Medicare
Does All Retirement Income Affect Medicare?
Most retirement income—including TSP withdrawals, pensions, RMDs, and Social Security (taxable portion)—counts toward Medicare’s MAGI calculation, with limited exceptions for certain Roth distributions.
How Far Back Does Medicare Look at Income?
Medicare bases Part B and D premium decisions on your MAGI reported to the IRS two years prior. For example, your 2026 premiums are based on your 2024 federal tax return.
What Happens If Income Drops After Retirement?
If your income decreases significantly due to a life-changing event, you may appeal your IRMAA determination with the SSA and potentially see your Medicare premiums recalculated sooner than the standard lookback would allow.
