The Medicare Surprise Nobody Warned You About: IRMAA, Your Income, and Why Annuities Belong in the Conversation

There's a letter that arrives from the Social Security Administration that ruins a lot of retirements in their very first year.

It informs you that your Medicare premium will not be what everyone told you it would be. It will be several hundred dollars a month more. And the reason has nothing to do with your health, your age, or anything you did wrong.

It's because of what your tax return said two years ago.

The letter is an IRMAA determination. Most people have never heard the word until it costs them money. By then, the decision that triggered it is two years in the rearview mirror and cannot be undone.

Let's fix that.

What IRMAA actually is

IRMAA stands for Income-Related Monthly Adjustment Amount. It's a surcharge added on top of your standard Medicare Part B and Part D premiums when your income exceeds certain thresholds.

It is not a penalty. You didn't break a rule. Medicare simply decided that higher-income beneficiaries should cover a larger share of the program's cost. So instead of paying roughly 25% of that cost like everyone else, you pay 35%, 50%, 65%, 80%, or 85%, depending on where your income lands.

Two things make IRMAA uniquely dangerous in retirement planning, and you need to understand both.

Danger #1: The two-year lookback

Medicare doesn't look at what you're earning now. It looks at your modified adjusted gross income (MAGI) from two years ago.

Your 2026 Medicare premiums are based on your 2024 tax return. Your 2028 premiums will be based on your 2026 tax return, the one you are living through right now.

Read that again, because it's the whole game.

The Roth conversion you do this year. The rental property you sell this year. The large IRA withdrawal you take this year to help a child buy a house. None of them touch your Medicare premium today. They show up two years later, long after you've forgotten you made the decision.

Danger #2: It's a cliff, not a slope

Income taxes are marginal. If you cross into a higher tax bracket, only the dollars above the line get taxed at the higher rate. That's a slope. It's forgiving.

IRMAA is not a slope. IRMAA is a cliff.

Cross the threshold by a single dollar and you owe the *entire* surcharge for that tier. Not a portion of it. All of it.

Here is what that looks like in 2026. The standard Part B premium is $202.90 per month. The tiers, by 2024 MAGI:

Single up to $109,000 or married filing jointly up to $218,000: $202.90
Single $109,001 to $137,000 or MFJ $218,001 to $274,000: $284.10
Single $137,001 to $171,000 or MFJ $274,001 to $342,000: $405.80
Single $171,001 to $205,000 or MFJ $342,001 to $410,000: $527.50
Single $205,001 to $499,999 or MFJ $410,001 to $749,999: $649.20
Single $500,000 and above or MFJ $750,000 and above: $689.90

On top of that, Part D adds a separate surcharge ranging from $14.50 to $91.00 per month, layered onto whatever your drug plan already charges.

Now do the math on that first line.

A single retiree with a 2024 MAGI of $109,000 pays $202.90 a month. A single retiree with a 2024 MAGI of $109,001 pays $284.10 a month, plus a Part D surcharge.

One dollar of income. Roughly $1,148 in additional Medicare premiums for the year.

For a married couple where both spouses are on Medicare, that same dollar costs the household roughly $2,300, because IRMAA is assessed per person.

I have watched people cross that line by a few hundred dollars because of a mutual fund capital gains distribution they never saw coming. It is one of the most expensive dollars in the American tax code.

What counts as income, including the part that surprises people

MAGI for IRMAA purposes is your adjusted gross income plus tax-exempt interest.

Sit with that second part.

The municipal bond interest you carefully arranged because it's federally tax-free? Social Security adds it right back in when it calculates your IRMAA. Tax-free for income tax purposes. Fully countable for Medicare purposes.

A lot of retirees discover this the hard way.

Here are the usual suspects that push people over an IRMAA line:

Required Minimum Distributions. Once RMDs begin at 73, a large traditional IRA generates taxable income whether you need the money or not.
Roth conversions. Excellent long-term strategy. Painful IRMAA surprise if you don't watch the thresholds.
Capital gains, including the sale of a home above the exclusion, a rental property, or a business.
Pension and Social Security income (the taxable portion).
Interest and dividends from CDs, bonds, and taxable brokerage accounts, even if you reinvest every penny and never spend a dime of it.

That last one deserves its own section.

Where annuities enter the conversation

Here is a distinction most people have never had explained to them, and it sits at the heart of this article.

Money in a CD, a bond fund, or a dividend-paying account generates taxable income every single year, whether you touch it or not. The 1099 arrives in January regardless. That income lands in your AGI, and your AGI is what Medicare uses.

Interest credited inside a deferred annuity does not. It grows tax-deferred. There is no annual 1099. It does not appear on your tax return, which means it does not appear in your MAGI, which means it does not push you toward an IRMAA cliff while it's growing.

Picture two retirees with the same money and the same growth. One holds it in a CD ladder, and the interest shows up on the tax return every year. The other holds it in a deferred annuity, and it doesn't. Only one of them is being pushed toward a Medicare surcharge by money they never spent.

That is a real, structural difference, and it is one of the least understood features of these contracts.

There are three more places annuities intersect with IRMAA.

Annuitized income is only partly taxable. When you convert a non-qualified annuity into an income stream, the IRS applies what's called an *exclusion ratio*. Part of each payment is treated as a return of your own principal, which is not taxable, and part is treated as interest, which is. So a $50,000 annual income stream from a non-qualified annuity may generate far less than $50,000 of MAGI. Compare that to pulling $50,000 out of a traditional IRA, where every single dollar counts against you.

A QLAC can shrink the RMD base. A Qualified Longevity Annuity Contract is a fixed deferred income annuity purchased inside an IRA that meets specific IRS requirements. In 2026, you can move up to $210,000 per person into a QLAC, and that money is removed from the balance used to calculate your RMDs until income begins, which can be deferred as late as age 85. Smaller RMDs mean smaller MAGI, and smaller MAGI means more room under an IRMAA threshold.

Income you can control is income you can plan around. Guaranteed, level, predictable income is far easier to keep beneath a cliff than portfolio withdrawals that swing with the market and throw off unpredictable gains.

Now the honest part

I am not going to tell you an annuity is an IRMAA-avoidance product, because it isn't. Anyone who tells you otherwise is selling rather than advising.

Here is what you also need to know.

Withdrawals from a non-qualified deferred annuity are LIFO. Last in, first out. The *gains* come out first and are fully taxable as ordinary income. A large one-time withdrawal can spike your MAGI and hand you an IRMAA surcharge two years later. Deferral protects you while the money sits. It does not protect you when you pull a big chunk out.
Annuities inside an IRA don't escape RMDs. Qualified annuity money is still IRA money. It is still fully taxable when distributed. The QLAC is a narrow, specific exception, not a general one.
Tax deferral is not tax elimination. You will pay eventually. What you're choosing is *when,* and whether the growth compounds against you in the meantime.
These contracts carry surrender charges and limited liquidity. They are not for money you might need next year.
Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. They are not FDIC insured.
Never let the tax tail wag the dog. Paying $1,148 in IRMAA to convert $60,000 to a Roth may be an outstanding trade. The goal is not to avoid IRMAA at all costs. The goal is to never trigger it *by accident.*

The one nobody sees coming: the survivor's cliff

This is the part I most want families to hear, because it lands on people at the worst possible moment.

Look at the bracket table again. The married filing jointly threshold is $218,000. The single threshold is $109,000. Exactly half.

When one spouse dies, the survivor eventually files as single, and their IRMAA thresholds are cut in half with them.

But the household income usually doesn't get cut in half. The larger Social Security check continues. The pension survivor benefit continues. The RMDs on the inherited IRA continue.

So a widow who never paid a dollar of IRMAA in her life can find herself, in the year after burying her husband, filing single, sitting in a surcharge tier, and paying hundreds more a month for Medicare. All while grieving. All while nobody has explained to her why.

Thirty years in this industry, and I will tell you plainly: almost no one plans for this. Not because it's complicated, but because nobody ever sat the family down and walked them through what happens *after.*

That is not a product problem. That is a conversation problem.

Two things that should give you relief

IRMAA is not a life sentence. It is recalculated every single year. If your income spiked in 2024 because you sold a property, and 2025 was normal again, the surcharge falls away on its own. One unusual year means one year of higher premiums, not a permanent penalty.

You can appeal it. If your income dropped because of a qualifying life-changing event, you can file Form SSA-44 with the Social Security Administration and ask them to use your current income instead of the two-year-old figure. Qualifying events include:

Work stoppage or work reduction, which covers the newly retired
Death of a spouse
Marriage, divorce, or annulment
Loss of income-producing property
Loss or reduction of certain pension income

If you just retired and Medicare is billing you based on your final year of full-time earnings, you should almost certainly be filing this form. Most people never do, because no one tells them it exists.

The real point

IRMAA is a two-year-delayed consequence of decisions you are making right now, and it operates on a cliff.

That means the planning has to happen *before* the income event, not after. Once the tax year closes, the door is shut. There is no do-over, no amendment, and no phone call that fixes it.

Which brings me to the question I ask every family I sit with, and it has nothing to do with annuities.

Does anyone in your family, your spouse, your children, the person who will handle things when you no longer can, know how your income is structured, why it's structured that way, and what happens to all of it when one of you is gone?

If the answer is no, then the product isn't your problem. The silence is.

Legacy is built by design, not by default.

*Angela Lockhart is the founder of LegaNexus and a licensed insurance producer with more than 30 years in financial services. If you'd like to walk through how your retirement income is structured and where your cliffs are, reach out at leganexus.com.*

*This article is for educational purposes only and is not tax, legal, or investment advice. All figures reflect 2026 Medicare and IRS amounts and are adjusted annually. Annuity contract features, tax treatment, and guarantees vary by product, by carrier, and by state. Please review your specific situation with a qualified tax professional and a licensed insurance professional before making any decision.*