Do IRA and 401(k) Withdrawals Count as Income for Medicare Savings Program Eligibility?
By Sharon Ben-Moshe · Founder & Editor
Yes — money you withdraw from a traditional IRA or 401(k) generally counts as unearned income in the month you receive it for Medicare Savings Program eligibility, the same way a pension payment does. A one-time withdrawal can push you over the income limit for that month even if your regular monthly income is well within range.
Why Retirement Withdrawals Count as Income, Not Assets
MSP eligibility uses the same income-counting methodology as Supplemental Security Income (SSI): money you take out of a retirement account is treated as unearned income for the month it's paid to you, alongside sources like Social Security, pensions, and annuity payments. It's counted once, when it's received — the withdrawal itself doesn't create an ongoing income stream in future months.
Which Disregard Applies: $20, or $65 Plus 50%?
This distinction matters. Social Security's income-counting rules apply the $20 general income disregard to unearned income first — and a retirement account withdrawal is unearned income, not earned income. That means it only gets the smaller $20 exclusion, not the more generous $65-plus-half exclusion that applies to wages from a job. A $500 IRA withdrawal in a given month adds roughly $480 to your countable income for that month, after the $20 disregard is applied (assuming it hasn't already been used up by other unearned income, like Social Security).
Required Minimum Distributions (RMDs) Count Too
If you're required to take annual Required Minimum Distributions from a traditional IRA or 401(k), that distribution counts as income in the month you receive it — regardless of whether you spend it or redeposit it elsewhere. If your RMD arrives as one lump sum in December, it's December's income that's affected, not income spread evenly across the year. For someone whose regular income sits close to the QMB, SLMB, or QI limit, a lump-sum RMD can temporarily push them into a lower tier or out of eligibility entirely for that month.
Does the Retirement Account Itself Count as an Asset?
This depends on your state and whether the account is in "payout status" (meaning you're already taking periodic distributions from it). Many states exclude a retirement account from the asset test once it's in payout status — treating only the distributions as income — while a retirement account you haven't started drawing from may be counted as a resource in some states. Rules vary enough by state that it's worth confirming directly with your state Medicaid agency or a SHIP counselor before assuming either way. Fourteen jurisdictions — 13 states and Washington, D.C. — report no MSP asset test. California is not one of them; it has higher 2026 asset limits.
A Practical Example
Say an individual applicant receives $1,300/month in Social Security — comfortably under the 2026 QMB limit of $1,350/month. In March, they withdraw $200 from a traditional IRA to cover a car repair. For March only, their countable unearned income becomes roughly $1,480 ($1,300 + $200 − $20 general disregard), which is above the QMB limit but still under the SLMB limit of $1,616. Depending on how their state handles a single-month income spike, this could mean a temporary change in coverage tier for that month, or it may simply be evaluated against their more typical monthly income at renewal — state practices vary, so it's worth asking your caseworker how one-time income is treated.
If you're planning a retirement account withdrawal and want to see how it affects your eligibility, run the free eligibility check with and without the withdrawal amount included to compare the two scenarios.
Frequently Asked Questions
Do 401(k) and IRA withdrawals count as income for the Medicare Savings Program?
Yes. Withdrawals from a traditional 401(k) or IRA are counted as unearned income in the month you receive them, using the same rules Social Security applies to pensions and annuity payments. Only the standard $20 general income disregard applies to this type of income, not the larger disregard used for wages.
Does a Required Minimum Distribution (RMD) count as income for MSP?
Yes. An RMD is counted as unearned income in the month it's paid out. If your RMD comes as a single annual lump sum, it affects your countable income only for that specific month, which can temporarily push you into a different MSP tier or out of eligibility depending on the amount.
Does my retirement account balance count toward the MSP asset limit?
It depends on your state and whether the account is in payout status. Many states exclude a retirement account from the asset test once you're taking regular distributions from it, counting only the distributions as income instead. States without any asset test — including California, New York, and Massachusetts — don't consider retirement account balances at all.
Is a Roth IRA withdrawal treated the same as a traditional IRA withdrawal?
The income-counting treatment generally follows the same unearned-income rules regardless of account type, though the taxable portion may differ for federal income tax purposes. Because state Medicaid agencies administer MSP and practices can vary, it's worth confirming with your state Medicaid office how a specific withdrawal will be counted.
Can a one-time withdrawal permanently disqualify me from MSP?
Not necessarily. A one-time withdrawal typically affects only the month it's received, since MSP income counting looks at income by month rather than averaging it over the year. However, if the withdrawal also pushes a countable resource over your state's asset limit — for example, if you don't spend it before the next review — that could affect ongoing eligibility. Check with your caseworker about how your state handles one-time income and end-of-month resources.
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