Quick Answer
Annuity payouts count as income on your tax return and increase your Modified Adjusted Gross Income (MAGI), which Medicare uses to determine whether you owe Income-Related Monthly Adjustment Amount (IRMAA) surcharges on Part B and Part D premiums. In 2026, a single filer with MAGI above $106,000 or a married couple above $212,000 will pay higher Medicare premiums—ranging from an extra $1,000 to over $6,000 per year. Understanding how annuity income interacts with IRMAA brackets is essential for keeping your retirement healthcare costs under control.
Key Takeaways
- Annuity income is part of MAGI: Whether from qualified (pre-tax) or non-qualified annuities, the taxable portion of your annuity payouts is included in the MAGI calculation that determines your IRMAA surcharge.
- IRMAA surcharges are steep: In 2026, the highest IRMAA bracket adds over $6,000/year to Medicare Part B premiums alone for single filers, and Part D surcharges can add another $1,000+/year.
- Timing matters more than you think: Deferring an annuity payout or accelerating income into a single year can have dramatically different IRMAA consequences depending on your other income sources.
- Two-year lookback creates a lag: IRMAA is based on your tax return from two years prior, so annuity income you take in 2026 affects your Medicare premiums in 2028.
- Strategies exist to reduce or eliminate IRMAA: Roth conversions before annuitizing, scheduling payouts around lower-income years, and using qualified charitable distributions can all help manage MAGI.
What Is IRMAA and Why Should Annuity Owners Care?
IRMAA stands for Income-Related Monthly Adjustment Amount. It is a surcharge that higher-income Medicare beneficiaries pay on top of the standard Medicare Part B and Part D premiums. The Social Security Administration determines your IRMAA tier based on your Modified Adjusted Gross Income (MAGI) from your federal tax return—specifically, the return filed two years before the current year.
For most annuity owners, the surprise comes when they start receiving annuity payouts and discover that this income pushed their MAGI above an IRMAA threshold. Unlike a one-time capital gain that you can plan around, annuity income is often recurring—meaning you could face IRMAA surcharges year after year.
This is especially relevant if you are also receiving Social Security benefits alongside annuity income, since up to 85% of Social Security benefits are taxable and also contribute to MAGI. The combination can push you into a higher IRMAA bracket faster than expected.
2026 IRMAA Thresholds and Surcharges
Medicare uses a sliding scale based on MAGI to determine your Part B and Part D premiums. Below are the 2026 IRMAA brackets for Part B and Part D.
2026 Medicare Part B IRMAA Brackets
| MAGI (Single) | MAGI (Married Filing Jointly) | Monthly Part B Premium | Annual Part B Cost |
|---|---|---|---|
| $106,000 or less | $212,000 or less | $185.00 | $2,220.00 |
| $106,001 – $133,000 | $212,001 – $266,000 | $259.00 | $3,108.00 |
| $133,001 – $167,000 | $266,001 – $334,000 | $370.90 | $4,450.80 |
| $167,001 – $200,000 | $334,001 – $400,000 | $482.80 | $5,793.60 |
| $200,001 – $500,000 | $400,001 – $750,000 | $594.70 | $7,136.40 |
| Above $500,000 | Above $750,000 | $628.90 | $7,546.80 |
2026 Medicare Part D IRMAA Brackets
| MAGI (Single) | MAGI (Married Filing Jointly) | Monthly Part D Surcharge | Annual Part D Surcharge |
|---|---|---|---|
| $106,000 or less | $212,000 or less | $0.00 | $0.00 |
| $106,001 – $133,000 | $212,001 – $266,000 | $14.00 | $168.00 |
| $133,001 – $167,000 | $266,001 – $334,000 | $36.30 | $435.60 |
| $167,001 – $200,000 | $334,001 – $400,000 | $58.60 | $703.20 |
| $200,001 – $500,000 | $400,001 – $750,000 | $80.90 | $970.80 |
| Above $500,000 | Above $750,000 | $85.80 | $1,029.60 |
At the highest bracket, a single filer could pay $8,576.40 per year in combined Part B and Part D premiums—a staggering increase over the base rate of $2,220.00.
How Annuity Income Pushes You Into Higher IRMAA Brackets
Annuity income is included in MAGI just like wages, pension income, and investment income. The key distinction is whether the annuity is qualified (held in an IRA or 401(k)) or non-qualified (purchased with after-tax dollars). For a deeper breakdown, see our guide on annuity income in taxable vs. qualified accounts.
- Qualified annuities: The entire payout is taxable as ordinary income and fully counts toward MAGI. If your 401(k) annuity pays $30,000/year, that is $30,000 added to your MAGI.
- Non-qualified annuities: Only the earnings portion (the amount above your cost basis) is taxable and counts toward MAGI. If your non-qualified annuity pays $20,000/year and $8,000 is earnings, only $8,000 is added to MAGI.
Real-World Scenario: The IRMAA Trap
Consider Robert, age 72, single filer:
| Income Source | Annual Amount | Taxable Amount |
|---|---|---|
| Social Security | $33,000 | $28,050 (85%) |
| Pension | $28,000 | $28,000 |
| 401(k) Annuity Payout | $24,000 | $24,000 |
| Investment Dividends | $8,000 | $8,000 |
| Total MAGI | $88,050 |
Robert’s MAGI is $88,050—comfortably below the $106,000 IRMAA threshold. He pays the standard Part B premium of $185/month.
Now suppose Robert decides to take an additional $25,000 from a non-qualified annuity he had been deferring, of which $15,000 is taxable earnings:
| Income Source | Annual Amount | Taxable Amount |
|---|---|---|
| Social Security | $33,000 | $28,050 (85%) |
| Pension | $28,000 | $28,000 |
| 401(k) Annuity Payout | $24,000 | $24,000 |
| Investment Dividends | $8,000 | $8,000 |
| Additional Annuity (Earnings) | $25,000 | $15,000 |
| Total MAGI | $103,050 |
Still under the threshold—barely. But what if the annuity had been qualified, or Robert took a larger withdrawal? An extra $10,000 in MAGI would push him to $113,050, triggering the first IRMAA tier with an additional $888/year in Part B premiums plus $168/year in Part D surcharges—a total of $1,056/year in extra Medicare costs.
Multiply this over several years of annuity payouts, and the cumulative IRMAA cost can reach $5,000–$15,000+ over a retirement.
The Two-Year Lookback: Why Today’s Annuity Decisions Affect Future Premiums
One of the most confusing aspects of IRMAA is the two-year lookback. Your 2026 Medicare premiums are based on your 2024 tax return. Your 2027 premiums use your 2025 return, and so on.
This means:
- If you start an annuity payout in 2026, it will affect your 2028 Medicare premiums.
- If you do a Roth conversion in 2026 before starting annuity income, the conversion income hits your 2028 premiums—but the subsequent tax-free Roth withdrawals will not.
- If you have a one-time spike in income (e.g., a large annuity surrender or withdrawal), you can request an IRMAA reconsideration using SSA Form SSA-44 if the spike was due to a qualifying life event like retirement.
When to Request an IRMAA Reconsideration
You can appeal your IRMAA determination if you experienced any of these qualifying life events:
- Marriage, divorce, or death of a spouse
- You or your spouse stopped working or reduced work hours
- Loss of income-producing property (due to disaster, not sale)
- Loss of pension income (employer plan termination)
- Receipt of a lump-sum settlement from a employer
If you retired and started annuity income at the same time, you may qualify for a reconsideration based on the work reduction event.
Strategies to Manage Annuity Income and Avoid IRMAA Surcharges
1. Time Your Annuity Payouts Strategically
If you have flexibility in when you start annuity payouts, consider your payout timing and tax differences carefully. Delaying annuitization to a year when your other income is lower can keep you under the IRMAA threshold.
For example, if you plan to delay Social Security until age 70, start annuity payouts in the gap years (age 65–69) when your MAGI is lower. This also helps with tax bracket shift management.
2. Use Roth Conversions Before Annuitizing
Converting traditional retirement assets to a Roth IRA before you start annuity income has two benefits:
- Roth withdrawals are tax-free and do not count toward MAGI.
- You reduce future Required Minimum Distributions (RMDs), which also lowers MAGI.
The trade-off: the Roth conversion itself increases your MAGI in the year of conversion. Plan the conversion at least three years before you need lower IRMAA premiums to account for the two-year lookback.
3. Spread Non-Qualified Annuity Withdrawals
With non-qualified annuities, you can often control how much taxable earnings you realize each year through systematic withdrawals. Instead of taking a large lump sum (which dumps all earnings into one tax year), spread withdrawals over multiple years to keep MAGI below IRMAA thresholds.
4. Coordinate with Social Security Timing
Since up to 85% of Social Security benefits are taxable, the year you claim Social Security matters enormously. If you can coordinate annuity payouts with Social Security, you may be able to avoid having both income sources hit your MAGI simultaneously.
5. Use Qualified Charitable Distributions (QCDs)
If you are age 70½ or older, you can make Qualified Charitable Distributions from your IRA directly to a qualified charity. QCDs count toward your Required Minimum Distribution but are excluded from MAGI. This can reduce your MAGI by up to $105,000 per year (2026 limit), potentially keeping you under an IRMAA bracket.
6. Consider a Mid-Year Tax Planning Review
Use our mid-year tax planning checklist to estimate your MAGI before year-end. If you are approaching an IRMAA threshold, you still have time to adjust annuity withdrawals, accelerate deductions, or defer income to the following year.
Comparing the Cost: IRMAA vs. Tax Bracket Shift
It’s important to understand that IRMAA surcharges and income tax bracket increases are separate costs that stack on top of each other. An annuity payout that pushes you into a higher tax bracket costs you in federal taxes, and the same payout can independently trigger IRMAA surcharges.
| Income Increase | Additional Federal Tax (22% bracket) | IRMAA Surcharge (Part B + D) | Total Annual Cost |
|---|---|---|---|
| $10,000 over threshold | $2,200 | $1,056 | $3,256 |
| $25,000 over threshold | $5,500 | $2,230 | $7,730 |
| $50,000 over threshold | $11,000 | $4,915 | $15,915 |
This table assumes a single filer in the 22% bracket crossing into the first or second IRMAA tier. The combined tax + IRMAA cost makes managing annuity income timing one of the most impactful financial decisions in retirement.
IRMAA Impact Calculator: Estimate Your Exposure
To estimate your own IRMAA exposure from annuity income:
- Total your expected MAGI for 2026 (Social Security taxable portion + pension + annuity payouts + investment income + any other taxable income).
- Compare against the thresholds in the tables above.
- Calculate the surcharge based on which bracket your MAGI falls into.
- Multiply by 2 years to account for the lookback—if your income spike lasts one year, you will pay the surcharge for two years (the year the income is reported and the following year until SSA updates records).
Remember: even a small amount of additional annuity income that pushes you just over a threshold can result in thousands of dollars in extra Medicare premiums.
Frequently Asked Questions
Does annuity income count toward the MAGI used for IRMAA?
Yes. The taxable portion of your annuity payouts—whether from a qualified annuity (entire payout) or a non-qualified annuity (earnings portion only)—is included in the Modified Adjusted Gross Income that determines your IRMAA surcharge. This applies to both immediate annuities and systematic withdrawals from deferred annuities.
How much can an annuity payout increase my Medicare premiums?
It depends on how close your MAGI is to an IRMAA threshold. A $10,000 annuity payout that pushes a single filer from $105,000 to $115,000 in MAGI would trigger the first IRMAA tier, adding approximately $888/year to Part B premiums and $168/year to Part D—for a total of about $1,056/year in extra Medicare costs. At higher thresholds, the surcharge can exceed $6,000/year.
Can I avoid IRMAA by using a non-qualified annuity instead of a qualified annuity?
Partially. With a non-qualified annuity, only the earnings portion (not the return of principal) counts toward MAGI. If your non-qualified annuity has a high cost basis, a smaller percentage of each payout is taxable, which means less MAGI impact. However, the earnings portion still counts, and over time as more earnings are distributed, the MAGI impact increases.
What happens to IRMAA if I take a large lump-sum annuity withdrawal?
A large lump-sum withdrawal from an annuity will significantly increase your MAGI for that tax year. Because IRMAA uses a two-year lookback, this single withdrawal could trigger higher Medicare premiums for two consecutive years. If the lump sum was taken due to a qualifying life event (such as retirement), you can file SSA Form SSA-44 to request a reconsideration and potentially have the IRMAA surcharge reduced or eliminated.
Does a Roth IRA annuity count toward IRMAA MAGI?
No. Qualified distributions from a Roth IRA—including annuity payments funded by a Roth IRA—are tax-free and do not count toward MAGI for IRMAA purposes. This is one reason why doing Roth conversions before starting annuity income can be an effective strategy for managing Medicare premium costs.
When should I start planning for IRMAA if I own an annuity?
Ideally, you should begin IRMAA planning at least 3–5 years before you turn 65 (when Medicare enrollment begins) or before you plan to start annuity payouts. Because of the two-year lookback, decisions you make today about annuity income, Roth conversions, or Social Security timing will affect your Medicare premiums two years later. A mid-year tax planning review can help you adjust before year-end.
Can married couples be affected differently by annuity income and IRMAA?
Yes. IRMAA thresholds for married couples filing jointly are roughly double the single-filer thresholds. However, if one spouse has significant annuity income and the couple files separately, the IRMAA thresholds drop dramatically—the lowest bracket for “married filing separately” starts at just $106,000. This makes filing status a critical consideration when managing annuity income near IRMAA thresholds.
Does a QLAC annuity help reduce IRMAA?
Indirectly, yes. A Qualified Longevity Annuity Contract (QLAC) allows you to defer up to $200,000 (2026 limit) from your qualified retirement account, reducing your RMDs and therefore your MAGI. Lower RMDs mean lower MAGI, which can keep you under an IRMAA threshold. However, the QLAC payouts themselves become taxable income when they begin, so you need to plan for the eventual MAGI increase.
Plan Your Annuity Income to Protect Your Medicare Premiums
IRMAA surcharges are one of the most overlooked costs in retirement planning—and annuity income is a common trigger. Before you start annuity payouts, model your total MAGI including Social Security, pensions, RMDs, and investment income. Use our Annuity Payout Tax Impact Simulator to see exactly how different annuity payout strategies affect your after-tax income and whether you are at risk of crossing an IRMAA threshold. A few adjustments to annuity timing today can save you thousands in Medicare premiums over your retirement.