Pension Income and Medicare: How Your Pension Decision Affects IRMAA Surcharges

Most retirees know that Medicare Part B has a standard premium. What many don't know is that income above a threshold triggers IRMAA — the Income-Related Monthly Adjustment Amount — which can add $974 to $11,688 per year in extra Medicare costs for a couple. Pension annuity income counts directly toward this threshold. IRA distributions from a rolled-over pension lump sum count too. The lump sum vs. annuity decision and your Roth conversion strategy have multi-decade IRMAA consequences that most pension advisors don't model.

What IRMAA is and how it works

Medicare Part B (outpatient coverage) has a standard base premium — $202.90/month in 2026.¹ If your income exceeds certain thresholds, Social Security adds a surcharge on top of that base premium. This surcharge is IRMAA.

IRMAA applies per person. A married couple, both on Medicare, each pays their own premium — so IRMAA surcharges hit twice. A couple in IRMAA Tier 2 doesn't pay an extra $405.80/month total; they pay $405.80 each, or $811.60/month between them.

IRMAA also applies to Medicare Part D (prescription drug coverage), adding a further surcharge on top of whatever your Part D plan premium is.

The 2-year lookback

IRMAA is based on your Modified Adjusted Gross Income (MAGI) from two years prior. Your 2026 Medicare premiums are based on your 2024 tax return. This creates a planning lag and a trap:

• A retiree who worked full-time in 2024 and retired in January 2025 may face IRMAA surcharges in 2026 based on their high 2024 working income — even though their retirement income is now much lower.
• The first year of pension annuity payments may spike 2025 income → trigger 2027 IRMAA surcharges, even if pension income is the same in 2027 as it is today.

There is a remedy for sudden income drops: the Form SSA-44 life-changing event appeal (covered below).

The cliff structure

IRMAA thresholds are cliffs, not smooth ramps. One dollar of additional income can push you from no surcharge to a $974/year surcharge — for both spouses. This makes income planning around the thresholds high-value work.

2026 IRMAA brackets

Part B monthly premiums by MAGI tier — single filer

Part B monthly premiums by MAGI tier — married filing jointly

Sources: CMS 2026 Medicare Parts B Premiums and Deductibles fact sheet; Kiplinger 2026 IRMAA analysis.¹² MAGI for IRMAA purposes = AGI plus tax-exempt interest income.

How pension annuity income flows into MAGI

Pension annuity payments are ordinary income and flow directly into AGI — and therefore into MAGI for IRMAA purposes — every year you receive them. The impact is permanent:

• A retiree receiving a $48,000/year pension annuity (single, no other retirement income except $24,000 Social Security) has provisional income of roughly $60,000.³ At a $78,000–$80,000 total MAGI (after standard deduction exclusion for taxable SS), this retiree stays below the $109,000 single threshold and owes no IRMAA.
• A retiree with a $120,000 pension annuity plus $35,000 SS plus $10,000 in other income has a MAGI around $165,000 and pays Tier 3 IRMAA ($324.60/month = $3,895/year) — every year for as long as they live.

The annuity is a permanent income floor. For large pensions, this creates a permanent IRMAA commitment that compounds over a 20–25 year retirement to $78,000–$100,000+ of lifetime extra Medicare costs in today's dollars.

How the lump-sum rollover route affects IRMAA

Rolling the pension to an IRA defers IRMAA — it doesn't eliminate it. The key differences:

The IRA rollover years (ages 65–72/75)

No pension income, so MAGI may be lower in your early retirement years. If you have Social Security and modest portfolio withdrawals, you might stay below the IRMAA threshold for a decade or more. This window is valuable for Roth conversions (see below).

Required Minimum Distributions

Under SECURE 2.0, RMDs begin at age 73 for those born 1951–1959, and age 75 for those born 1960 or later.⁴ A $1.2M IRA (a $900K pension rollover grown at 5% over 10 years) has an RMD of roughly $47,000–$50,000 at age 73. Add Social Security and other income, and many rollover retirees end up pushing past $109,000 (single) or $218,000 (MFJ) later in retirement — often at ages when they have higher healthcare utilization and least want premium surprises.

The RMD cliff is steeper than the annuity slope

IRA balances grow in a tax-deferred environment until RMDs begin. The result: the "deferred IRMAA" often arrives as a larger spike than the steady annuity income would have created. A $900K rollover left untouched for 10 years at 6% becomes $1.6M before the first RMD. That $1.6M generates a first-year RMD of approximately $61,000 (at age 73, using the Uniform Lifetime Table factor of 26.5).⁵ For a couple with other income, this readily pushes into Tier 2 or Tier 3 IRMAA.

The Roth conversion window: the highest-value planning opportunity

If you roll your pension to a traditional IRA and retire before Medicare age (65), you have a window — sometimes a decade — where your income may be lower than it will be at 65+ and certainly lower than it will be when RMDs begin at 73 or 75. This window is the right time to convert IRA dollars to Roth.

Roth IRA distributions are tax-free and do not count toward MAGI for IRMAA purposes. Converting $150,000 of IRA to Roth over 5 years (ages 60–64, before Medicare) eliminates $150,000 of future taxable IRA balance — and $150,000 of future RMDs — without the cost showing up in Medicare premiums.

How to size Roth conversions

The target is to convert enough each year to fill your current tax bracket but stop just below IRMAA thresholds once you hit Medicare age. In practice:

• Pre-Medicare conversion (ages 60–64): Convert aggressively up to the top of the 22% or 24% bracket. You have no Medicare premiums to manage yet.
• Post-Medicare, pre-RMD conversion (ages 65–72/74): Convert up to just below the IRMAA threshold — $109,000 for single filers, $218,000 for married filing jointly. Don't cross the cliff.
• Post-RMD years (73+): RMDs are forced income; you may have little room. But if RMDs don't fill the bracket, additional conversion is still possible.

A real example

A 60-year-old couple with a $900K pension rolled to IRA, $60K joint SS at 67, and no other retirement income:

• Ages 60–64 (pre-Medicare): No Medicare yet. SS not yet claimed. MAGI from IRA withdrawals and Roth conversions only. Converting $120,000/year for 5 years ($600,000 total) at roughly 22% = $132,000 in federal tax. Remaining IRA: ~$500,000–$600,000.
• Ages 65–72 (Medicare, no RMDs yet): SS income ($60K, ~$51K taxable). Small IRA distributions. MAGI roughly $80,000 → no IRMAA. Convert up to $138,000/year if MAGI allows.
• Ages 73+ (RMDs begin): IRA now ~$300,000–$400,000 after years of conversion. RMD from $350K at 73: ~$13,200. Add $51K taxable SS = ~$64K MAGI. Stays below IRMAA threshold. Roth IRA distributes tax-free, zero IRMAA impact.

Compare to doing nothing: same couple, $900K IRA growing to $1.6M at age 73. RMD ≈ $60,400. Plus $51K taxable SS = $111,400 MAGI → Tier 1 IRMAA for both ($1,949/year as a couple). By 75, IRA grows further and RMDs increase, potentially pushing into Tier 2. Over 20 years, the do-nothing path likely costs $40,000–$70,000 in additional Medicare premiums versus an active conversion strategy.

Pension annuity + IRMAA: modeling the permanent cost

If you take the pension annuity, there is no Roth conversion window from the pension itself — that income is permanent and arrives every year. But you may still have Roth conversion opportunity from other IRA or 401(k) assets.

For large pensions that already push MAGI above IRMAA thresholds, the incremental IRMAA cost of converting other IRAs may be small (you're already paying Tier 1 surcharges; converting doesn't make it worse until you cross into Tier 2). This creates a counterintuitive planning scenario where large-pension retirees should convert other retirement assets faster, because the IRMAA marginal cost of conversions is already partly "paid."

The Social Security provisional income interaction

Pension income also affects how much of your Social Security benefit is subject to federal tax — which in turn affects MAGI. Under current law, up to 85% of SS benefits are taxable if provisional income exceeds $34,000 (single) or $44,000 (MFJ).³

For a retiree with a $60,000 pension annuity plus $24,000 SS: provisional income = $60,000 + $12,000 (50% of SS) = $72,000. Well above $44,000, so 85% of SS is taxable ($20,400). MAGI ≈ $80,400. Below single-filer IRMAA threshold of $109,000. Fine.

Add a $40,000 IRA distribution: MAGI ≈ $120,400 → Tier 1 IRMAA ($974/year). The IRA distribution effectively costs more than its headline tax cost, because it also triggers $974 in Medicare surcharges.

Appealing IRMAA with Form SSA-44

If your income dropped significantly due to a life-changing event — retirement, divorce, death of a spouse, or loss of income-producing property — you can request that SSA use more recent income data rather than the 2-year lookback. This is done via Form SSA-44 (Medicare Income-Related Monthly Adjustment Amount — Life-Changing Event).

The qualifying life-changing events include:

• Marriage, divorce, or death of a spouse
• Work reduction or cessation (retirement, leaving employment)
• Loss of income-producing property (not through sale)
• Loss of employer pension
• Employer settlement payment received

Retirement is the most common trigger. If you retired in 2024 and your 2026 IRMAA is based on your high 2024 working income, you can submit SSA-44 with your expected 2026 income. SSA will use your estimated current-year income for the premium calculation, reducing or eliminating the surcharge.

File SSA-44 at your local Social Security office or by mail. Processing typically takes 30–60 days. If approved, you receive a premium adjustment and a refund of overpaid surcharges back to the effective date.

What this means for the lump sum vs. annuity decision

IRMAA is one more dimension of the pension decision that most people don't price in. Here's how to think about it:

The bottom line: the after-IRMAA value of the pension annuity is lower than its headline payment suggests, if your pension pushes you into IRMAA territory. The break-even analysis in our lump sum vs. annuity guide uses pre-tax numbers — adding IRMAA tilts the math slightly toward the lump sum for high-income retirees who will actively manage Roth conversions.

For retirees with modest pension income who will stay below IRMAA thresholds regardless, it's a non-issue, and the annuity's longevity insurance value stands on its own terms.

Related guides

• Pension Lump Sum vs Annuity: The Complete Analysis — break-even math, interest rates, longevity framing
• Pension Lump Sum Tax Strategies — 2026 bracket math, Roth conversion timing, Rule of 55, state tax
• Pension + Social Security Coordination — provisional income, delay-to-70 strategy, WEP/GPO repeal
• Lump Sum vs Annuity Calculator — model your own break-even with longevity and return assumptions

1. CMS: 2026 Medicare Parts B Premiums and Deductibles — base premium $202.90/month and IRMAA surcharge schedule. Values verified May 2026.
2. Kiplinger: Medicare Premiums 2026 — IRMAA Brackets and Surcharges for Parts B and D — full tier table for single and MFJ filers including Part D surcharges.
3. IRS Publication 915: Social Security and Equivalent Railroad Retirement Benefits — provisional income thresholds for SS benefit taxation ($34K single / $44K MFJ for 85% inclusion).
4. IRS: Required Minimum Distributions FAQs — SECURE 2.0 RMD age 73 (born 1951–1959) / age 75 (born 1960+).
5. IRS Publication 590-B: Distributions from Individual Retirement Arrangements — Uniform Lifetime Table RMD factors (factor 26.5 at age 73).

Values verified as of May 2026. IRMAA thresholds are inflation-adjusted annually by CMS. The 2026 thresholds apply to 2024 MAGI. Medicare premiums and IRMAA surcharges are subject to change each year. PensionRolloverAdvisorMatch is a referral service, not a licensed advisory firm. We may receive compensation from professionals in our network. Content is for informational purposes only and does not constitute financial, tax, or investment advice.