She Moved $350,000 Into an Annuity at 70. Her $2,100 Monthly Check Stayed the Same. Everything Else Changed.

She Moved $350,000 Into an Annuity at 70. Her $2,100 Monthly Check Stayed the Same. Everything Else Changed.

David Beren

Thu, August 27, 2026 at 7:34 PM GMT+3 5 min read

Quick Read

• IRA-funded annuity payments count as fully taxable ordinary income, stacking on Social Security and pushing more of that benefit into taxable territory, with as much as 85% potentially becoming taxable.

• Medicare's IRMAA surcharge uses a two-year lookback, so annuitizing today can push the Part B premium from $203 to $284 two years later with no appeal option.

• Partial annuitization or using non-IRA money could have produced a partly tax-free payment, preserving flexibility for Roth conversions and keeping MAGI below IRMAA thresholds.

• Read More: Learn 7 ways to generate income with a $1,000,000+ portfolio (sponsor)

A 70-year-old retiree moved $350,000 from a traditional IRA into a single-premium immediate annuity, trading market risk for a guaranteed monthly deposit of $2,100. That check arrives on the same day each month, in the same amount, for as long as the contract promises. The deposit is the only part of her financial life that stayed still. Her federal tax bill, Medicare premium, and the taxable share of her Social Security check all moved after the transaction.

Why the Check Is Fixed but the Tax Bill Is Not

Annuitization is the process of converting a lump sum into a stream of payments, and once you make that election, it is generally irrevocable. When that lump sum comes from a traditional IRA, every dollar of every payment is treated as ordinary income because the money was never taxed on the way in. There is no return-of-principal exclusion as you get with a nonqualified annuity. That $2,100 hits her 1099-R each year at full value and stacks right on top of Social Security, any pension, and whatever remaining IRA withdrawals she takes.

The point Suze Orman has made on her podcast applies here directly: the money you take out from a traditional retirement account will count towards income and probably increase your Medicare B premiums. An annuity payment funded from an IRA is that same money, just delivered on a schedule she cannot change.

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How IRMAA Reaches Back Two Years

IRMAA stands for the Income-Related Monthly Adjustment Amount, and it is the surcharge Medicare adds to your Part B and Part D premiums when your modified adjusted gross income crosses certain thresholds. According to CMS, the standard 2026 Part B premium is $202.90, and IRMAA affects roughly 8% of people with Medicare Part B. The first surcharge tier for 2026 kicks in above $109,000 in MAGI for an individual filer, or $218,000 for a joint return. Cross that line and your total Part B premium rises to $284.10 per month, with an added $14.50 tacked onto Part D.

The trap is the lookback. Medicare uses the tax return from two years earlier to set today's premium. A retiree who annuitizes in one year may not feel the IRMAA consequence until two years later, when the bracket-setting return catches up. By then, the annuitization is done, and the income is locked in. IRMAA is redetermined annually, and you can appeal after a qualifying life-changing event such as the death of a spouse, divorce, or work stoppage, using Form SSA-44. A large IRA-to-annuity transfer is not, by itself, a life-changing event, which is one of several IRMAA quirks we mapped in a free Medicare guide.

Social Security Squeeze From Annuity Income

Provisional income is the IRS formula that decides how much of a Social Security benefit is taxable. It adds adjusted gross income, nontaxable interest, and half of Social Security benefits. Once provisional income crosses the lower thresholds for single or joint filers, part of the benefit becomes taxable, and above the upper thresholds, up to 85% of the benefit is taxable. The $2,100 monthly annuity payment counts in full toward that calculation. A benefit that was mostly tax-free before annuitization can shift to mostly taxable after, without the retiree changing anything else.

What Fixed Really Means in a 3% Inflation World

That monthly check is locked in for good. It never gets a cost-of-living bump. The Consumer Price Index sat at 332.8 as of July 2026, and the 2027 Social Security COLA is tracking toward 3.1%, so her Social Security will go up next January. The annuity will not budge. Insurers priced that contract using rates like the 10-year Treasury yield, which sat at 4.64% on August 25, 2026, which is why the initial payout looked so appealing when she signed. But that appealing number does nothing to protect her buying power a decade from now.

What She Could Have Done Differently

• Partial annuitization. Moving a portion of the IRA rather than the full $350,000 would have produced a smaller guaranteed check and left assets available for Roth conversions, charitable distributions, or emergency spending.

• Timing around IRMAA brackets. Modeling the two-year lookback effect before signing and spreading taxable income across calendar years can keep MAGI below the next surcharge tier.

• Using non-IRA money. Funding an annuity with taxable savings creates a payment that is partly a nontaxable return of principal, which reduces the pressure on IRMAA and on the Social Security provisional-income calculation.

The check will keep arriving as promised. The remaining variability sits in the tax return, Medicare premium, and Social Security taxation, which are the elements not fixed by the annuity contract.

A $1,000,000 Income Portfolio

If you've saved over $1,000,000, this guide is for you. The last thing you want in retirement is to run out of money, you want your money to generate lasting income while you enjoy your life.

Now you can learn the strategies wealthy retirees use to fund their retirement with The Definitive Guide to Retirement Income from Fisher Investments. Download the guide today! (sponsor)

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