Episode #71 Fixed Indexed Annuities and IRMAA

What Is IRMAA and Why It Matters for Retirees

IRMAA stands for Income Related Monthly Adjustment Amount. It’s a fancy term, but it basically means this: the more income you report after age 65, the more you’ll likely pay for Medicare Part B and Part D.

As of 2025, here’s what those income brackets look like:

Filing Status	Annual Income	Monthly Medicare Premium (Per Person)
Single	$106,000+	$185 or more
Married	$212,000+	$185 or more

And get this—going just $1 over the limit can bump your premium by around $74 per month, per person. That adds up fast and can be a surprise if you’re not paying attention to how your income is calculated.

How IRMAA Is Calculated: From AGI to MAGI

IRMAA isn’t just based on your regular taxable income. It starts with your Adjusted Gross Income (AGI)—things like:

• • Wages or self-employment income

• • Rental income

• • Interest from savings and investments

• • Dividends

• • Other taxable income

From that AGI, certain deductions (like IRA contributions or student loan interest) are subtracted. That amount becomes your Taxable Income.  Then the IRS adds back specific items to figure out your Modified Adjusted Gross Income (MAGI)—which is what Medicare uses to determine your IRMAA bracket.

It’s kind of like a puzzle. Even tax-free income from things like municipal bonds might get added back in. So your true income for Medicare isn’t always what shows up on your tax return.  The U.S. tax code is just ridiculous.

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Surprising Sources of Income That Raise Your IRMAA

Here’s where people often get caught off guard. Some types of income that seem “invisible” still count toward your IRMAA:

• • A portion of your Social Security income

• • Interest on savings accounts, CDs, and bonds (including zero-coupon bonds)

• • Dividends—even if reinvested into more stock

• • Tax-free municipal bond interest

• • Deferred interest you haven’t taken yet

These can push your MAGI up, even if you’re not receiving the money as spendable income.

Bottom line: Even if you’re not spending the income, it could still count against you and increase your Medicare premiums.

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Which Annuities Can Be an IRMAA-Friendly Option

If you’re investing outside of retirement accounts (non-qualified money) and don’t need immediate income, annuities might be a better choice.

Two types of annuities stand out:

• • Fixed Indexed Annuities (FIAs)
    

• • Multi-Year Guaranteed Annuities (MYGAs)
    

These products grow tax-deferred, and the growth doesn’t count toward your MAGI while it’s inside the annuity. That means you can build wealth without inching closer to the next IRMAA bracket.

This only applies to non-qualified funds (money you’ve already paid taxes on before investing), not money inside an IRA or 401(k), since that is already tax-deferred.

What Happens When the Annuity Term Ends?

A common question is: What happens when the annuity ends? Won’t you get hit with a big tax bill that pushes up your IRMAA?

That depends on what you do next.

You have the option to use a 1035 exchange—this means you can roll over the funds into another annuity, keeping your tax deferral going. No taxes are due, and no bump in your IRMAA. You can repeat this strategy for the rest of your life if needed.

So, you’re in control. You only pay taxes (and increase your MAGI) if you decide to take the earnings out.

Income Annuities and the Exclusion Ratio

Now, what if you need steady income from your investments?

That’s where non-qualified income annuities come in. These give you monthly payments for life, and they also come with a tax advantage: the exclusion ratio.

This IRS rule means part of your monthly income is considered a return of premium, not taxable income. Only the interest portion is taxable and counts toward MAGI.

Let’s say 60% of your income is excluded:

• • You receive $1,000/month

• • Only $400 counts toward IRMAA

• • $600 is tax-free and ignored for Medicare

That might be just enough to keep you under the threshold and avoid a higher Medicare premium.

Roth Conversions Inside Annuities for Tax-Free Income

If you’ve got time before you need the money, another strategy is to consider Roth conversions inside annuities.

Here’s how it works:

• • Move funds from a traditional IRA to a Roth IRA inside an annuity
    

• • Pay taxes now while you’re in a lower bracket

• • Future income from the Roth is completely tax-free and doesn’t count toward IRMAA
    

This isn’t a fit for everyone and requires planning. But for some people, it’s a powerful way to build income that won’t raise their Medicare costs later on.

Important: ROTH IRA income is one of the few things that truly does not get added back when calculating your MAGI.

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Final Thoughts: This Is About Education, Not Sales

This information isn’t meant to sell you on annuities. It’s here to help you understand the rules that could impact your retirement.

Before you make any decisions, talk to a qualified tax advisor who can review your full situation. Sometimes, these strategies can save you thousands. Other times, they may not be worth the effort.

But at least now, you know what questions to ask.

If you want to learn more about how annuities work, especially if you’re new to them, be sure to watch the video series: “20% More Spendable Income in Retirement.” It’s a great place to start, and if you’d like me to look at your specific situation, schedule a call using my online calendar.

All the best,
Marty Becker

Podcast Episode #71 Fixed Indexed Annuities and IRMAA

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