The Surprising Reason Large 401(k) Withdrawals May Get More Expensive Starting at Age 63

When it comes to your 401(k), you want to maintain a safe withdrawal rate. In some cases, though, taking a large lump-sum distribution may be part of your retirement planning process.

When you take a large amount out of your 401(k), you have to pay taxes on the withdrawal at your ordinary income tax rate, and the distribution counts as income. Since your taxable income increases, you could end up pushing yourself into a higher tax bracket. This happens at any age.

But if you take a withdrawal starting at age 63, that big distribution could actually end up costing you much more than if you'd acted sooner. Here's why that could happen.

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Why might a large 401(k) withdrawal cost more starting at age 63?

Withdrawing a lot of money from your 401(k) at age 63 could be a much costlier move for one simple reason: IRMAA. IRMAA stands for "income-related monthly adjustment amount." It means that your Medicare premiums are adjusted based on income.

See, when you qualify for Medicare at age 65, Medicare Part A (hospital insurance) is free for most people. But Medicare Part B (outpatient care) comes at a cost, as does Medicare Part D (prescription drug coverage). You have to pay monthly premiums for both Part B and Part D.

Most people pay the standard Part B premium, which is $202.90 in 2026. High earners, though, get hit with higher premiums thanks to IRMAA. And a large withdrawal from retirement plans starting at 63 could cause you to be treated as one of those "high-earners" because the Social Security Administration calculates IRMAA by looking at taxable income from two years ago. This is actually true not just for a 401(k) but for any retirement account with taxable distributions, like an IRA.

So, if you took a $50,000 distribution from your 401(k) at age 63, your taxable income would be $50,000 higher than it otherwise would have been when the Social Security Administration calculates the cost of your Medicare premiums at 65. If this put you over the threshold when IRMAA applied, you'd have to pay more for Medicare all year long.

How much does IRMAA cost you?

The adjustment to your Medicare premiums depends on how high your income is. If your income in 2024 was $109,000 to $137,000 and you were a single tax filer that year, your Medicare premiums in 2026 would be $284.10 instead of the $202.90 that most other people pay. If your income was $137,000 to $171,000 in 2025, your premiums would be $405.80 in 2026.

Married couples have higher income thresholds before IRMAA kicks in. And premiums only grow as your income does. For example, a single filer with an income of $500,000 or more, or married joint filers with an income above $750,000, would pay $689.90 for Medicare.

These added costs can be very expensive throughout the year, making your large 401(k) distribution starting at 63 and beyond cost you significantly more than if you'd taken the distribution earlier. You need to be aware of this possibility as you decide how to manage your 401(k) or IRA distributions in retirement.

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