She Rolled a $260,000 403(b) Into an Annuity at 66. The $1,520 Check Went on Top of Her Pension, and Two Years Later Both Showed Up on Her Medicare Bill

Two years is the entire story for a 66-year-old retiree who rolls a $260,000 403(b) into an income annuity that starts paying $1,520 per month. That check lands on top of her existing pension. Both are ordinary income, and together they push her modified adjusted gross income (MAGI) higher than either could alone. Then nothing happens. For two years. In the third year, her Medicare premium bill arrives with a surcharge she didn’t budget for because Medicare’s income-related monthly adjustment amount, known as IRMAA, is calculated from the tax return filed two years earlier.

The $1,520 figure is illustrative. Annuity quotes vary by insurer, state, gender, payout option, and prevailing interest rates, and they change constantly. Treat the monthly amount as an illustrative scenario only.

Two-Year Lookback That Nobody Explains

Medicare uses MAGI from two tax years back to set current-year premiums. Income created in the year she annuitized shows up on her Medicare bill in year three. That lag is the most misunderstood feature of Medicare pricing, and it makes the annuitization decision so consequential: the tax return that determines the surcharge has already been filed by the time the higher bill arrives.

How the Income Stack Triggers the Surcharge

A pension recipient already carries a high floor of ordinary income before any annuity is layered on. Stack the pension, the annuity payment, Social Security if claimed, and any other taxable income, and MAGI can jump into a surcharge tier that would have been unreachable on the pension alone. Every dollar of the annuity payment is ordinary income here because the source was a pre-tax 403(b), so no return-of-principal portion can shield part of the check.

For 2026, a single filer with MAGI at or below $109,000 pays the standard Part B premium of $202.90 and no Part D surcharge. Cross into the next tier (MAGI above $109,000 and up to $137,000), and Part B jumps to $284.10 per month, while Part D adds a separate $14.50. Higher tiers climb further, up to $689.90 per month for Part B alone. The Part D surcharge is additive, so coverage that mentions only Part B understates the true cost.

Why IRMAA Acts as a Cliff

Ordinary income tax brackets are marginal: only the income above the line gets the higher rate. IRMAA does not work that way. Cross a threshold by a single dollar, and the entire year’s surcharge moves up to the next tier. A retiree who lands $100 over the $109,000 single-filer line pays the full higher premium for all twelve months. That is the cliff, and it is why December income planning matters more than most retirees realize.

Public-Sector Twist Most Coverage Missed

Many 403(b) holders are teachers, nurses, and state or local government employees, and some have spent years in jobs not covered by Social Security. Two provisions that used to reduce their Social Security checks, the Windfall Elimination Provision and the Government Pension Offset, were repealed by the Social Security Fairness Act, signed in January 2025. For affected retirees, Social Security benefits rose, which raised MAGI and increased exposure to IRMAA thresholds. Most annuity coverage has not caught up to this shift.

Appeal Form Most People Never File

IRMAA can be appealed using Form SSA-44 when a qualifying life-changing event caused the income spike: marriage, divorce, death of a spouse, work stoppage, work reduction, loss of income-producing property, loss of pension income, or an employer settlement payment. Be precise about the limit here. Retirement itself generally qualifies, but a one-time income event like annuitizing an account generally does not. Buyers deserve to know that before signing.

Planning Moves Tied to the Two-Year Lag

• Annuitize in a year when other income is already low, so the spike lands on a low-MAGI return.
• Split a rollover across tax years rather than doing it all at once.
• Choose a longer deferral so income starts in a year, already modeled.
• Use qualified charitable distributions once eligible to keep required minimum distributions out of MAGI.
• Check where MAGI sits relative to the next threshold before December, not after.

Two more items belong in the file. A surviving spouse moves from joint thresholds ($218,000 for the first tier) to single thresholds ($109,000) while keeping much of the household income, which is the widow’s IRMAA trap (we mapped that surcharge and the other premium traps retirees walk into in a free Medicare guide here). And annuitizing is generally irreversible, so a direct trustee-to-trustee rollover avoids withholding problems on the way in, but nothing undoes the income stream on the way out.

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