Medicare and your 401k (2024)

FAQs

Medicare and your 401k? ›

Can I Receive Medicare & Keep My 401(k)? Yes. You can have both a 401(k) and Medicare. Medicare should not be confused with Medicaid.

The amounts deferred under your 401(k) plan are reported on your Form W-2, Wage and Tax Statement. Although elective deferrals are not treated as current income for federal income tax purposes, they are included as wages subject to Social Security (FICA), Medicare, and federal unemployment taxes (FUTA).

Enter the full amount before any deductions. Don't include Supplemental Security Income (SSI). Include most IRA and 401k withdrawals.

The IRS allows penalty-free withdrawals from retirement accounts after age 59½ and requires withdrawals after age 72. (These are called required minimum distributions, or RMDs). There are some exceptions to these rules for 401(k) plans and other qualified plans.

By setting up an irrevocable trust and transferring into it any assets in excess of the Medicaid financial limits, you can effectively shield those assets from the program's fines and other penalties.

Do 401k withdrawals count as income for Medicare? The Medicare Part B Premium charged by the government changes based on your income. Taking tax-free Roth withdrawals won't affect this Medicare premium. But the distributions you take from traditional IRAs count as income for your Part B Premium.

To sum it up, you'll owe income tax on 401(k) distributions when you take them, but no Social Security tax. Plus, the amount of your Social Security benefit won't be affected by your 401(k) taxable income.

Because you don't pay taxes on your contributions (or your employer's contributions if you get a match), your withdrawals will be taxed at your ordinary income rate in retirement. You'll also have to pay taxes on any funds your employer contributed.

Under the Employee Retirement Income Security Act (ERISA), creditors are generally not able to seize funds from pensions and employer-sponsored retirement accounts.

Social Security tax FAQs

Social Security income can be taxable no matter how old you are. It all depends on whether your total combined income exceeds a certain level set for your filing status. You may have heard that Social Security income is not taxed after age 70; this is false.

How do I avoid 20% tax on my 401k withdrawal? ›

One of the easiest ways to lower the amount of taxes you have to pay on 401(k) withdrawals is to convert to a Roth IRA or Roth 401(k). Withdrawals from Roth accounts are not taxed. Some methods allow you to save on taxes but also require you to take out more from your 401(k) than you actually need.

In general, Roth 401(k) withdrawals are not taxable, provided the account was opened at least five years ago and the account owner is age 59½ or older. Employer matching contributions to a Roth 401(k) are subject to the account owner's income tax rate.

Certain strategies, such as continuing to contribute to retirement accounts, can reduce the higher taxable income for someone older than 73. Depending on specific circ*mstances, workers over age 73 can still contribute to an IRA, a 401(k), and other retirement accounts.

Medicare examines your bank accounts and other assets when you seek financial help with Medicare costs. However, eligibility criteria and verification procedures differ by state of residence. In certain states, there are no asset limits for Medicare savings programs.

Traditional 401(k) plans are tax-deferred. You don't have to pay income taxes on your contributions, though you will have to pay other payroll taxes, like Social Security and Medicare taxes.

Retirement plan contributions do not reduce Medicare wages.

Call +1 800-772-1213 and tell the representative you want to lower your Medicare Income-Related Monthly Adjustment Amount (IRMAA) if you had an amended income tax return.

The W-2 Box 5 amount is taxable wages subject to Medicare taxes. This differs from your gross earnings because there are certain deductions that reduce your Medicare taxable wages, such as pretax medical/dental and vision insurance, and FSA Medical and Dependent Care.

If your income has gone down, you may also use Form SSA-44 to request a reduction in your income-related monthly adjustment amount.

If you miss a payment, or if we get your payment late, your next bill will also include a past due amount. If you get a Medicare premium bill that says “Delinquent Bill” at the top, pay the total amount due, or you'll lose your Medicare coverage.