Skip to main content

Question: I received a notice from my 401(k) custodian, reminding me about my required minimum distribution (RMD). My question: How do I avoid the increase to my Medicare premiums on money I receive? If I use the qualified charitable distribution, or QCD, which is not taxed as income, is the RMD amount still seen by Medicare as income, thus raising my Medicare payments? Just trying desperately to dodge the tax and Medicare premiums increases. Are there other ways I can use my RMD to help reduce my taxes?

Answer: Your current Medicare Part B and Part D costs are linked to your modified adjusted gross income (MAGI) reported on your tax return from two years ago, says Robert Westley, a wealth adviser at Northern Trust and a member of the AICPA Personal Financial Specialist Credential Committee.

Your required minimum distribution (RMD) amount is included in your MAGI and therefore can raise your Medicare costs, he says. (MAGI is adjusted gross income, or AGI, plus any tax-exempt bond interest that must be added back to determine if the thresholds are reached.)

Read HI 01101.020 IRMAA Sliding Scale Tables, Medicare Premiums: Rules For Higher-Income Beneficiaries, Initial IRMAA Determination, Medicare Income-Related Monthly Adjustment and Income-Related Medicare Adjustment Amount, and New IRMAA Medicare Premium Surcharges Taking Effect In 2018.

(It's also worth noting that there are several ways to reduce MAGI according HealthView Services. Strategies include using Roth IRAs, Roth 401(k)s, qualified annuities, life insurance policies, and health savings accounts (HSAs). People also can consider selling their house two or more years before enrolling in Medicare, so that the proceeds do not increase MAGI.)

Using a Qualified Charitable Distribution

"As you mentioned, a qualified charitable distribution (QCD) is an excellent strategy to minimize the impact of RMDs on your Medicare costs," says Westley. "The QCD will satisfy your RMD or part of your RMD and it will not be included in MAGI for determining future Medicare costs."

Read Retirement Plans FAQs regarding IRAs Distributions and Rules To Do An IRA Qualified Charitable Distribution.

Westley also says you can use your RMD to invest in real estate, however, the RMD will still be included in your MAGI for determining your Medicare costs. "Investing in real estate can produce tax benefits as the associated real estate taxes on a secondary residence are deductible, when combined with all other state and local taxes, up to $10,000," he says. "Additionally, If the property was used as a rental property, it could potentially generate positive cash flow while, in limited cases, generate a deductible loss for tax purposes due to depreciation."

Got questions about the new tax law, Social Security, Medicare, retirement, investments, or money in general? Want to be considered for a Money Makeover? Email