Retirement & Tax Planning Answers
Are Pensions Included in IRMAA? Does a 401(k) Count?
Quick answer
Yes, pension payments and distributions from a traditional 401(k) or traditional IRA count toward the MAGI used to determine IRMAA, because they're ordinary taxable income that flows straight into your Adjusted Gross Income. It's the distribution that counts, not the account balance, so an untouched 401(k) or IRA contributes nothing until money actually comes out of it. What does NOT count: qualified Roth 401(k) and Roth IRA withdrawals (not taxable), HSA distributions used for qualified medical expenses, Qualified Charitable Distributions (which bypass AGI entirely rather than being deducted after the fact), gifts and inheritances received, and life insurance proceeds. Everything else that shows up as ordinary taxable income, wages, self-employment income, capital gains, dividends, taxable interest, rental income, and the taxable portion of Social Security, counts as well.
What Counts, What Doesn't, and Why the Difference Matters
IRMAA's MAGI is built from your Adjusted Gross Income, so the rule of thumb is simple: if it's taxable income on your 1040, it counts toward IRMAA. Pension payments are ordinary taxable income the moment you receive them, so every pension check counts in full. Traditional 401(k) and traditional IRA distributions, including Required Minimum Distributions and any voluntary withdrawals, are taxed the same way and count the same way. This includes a Roth conversion: the amount you convert from a traditional account to a Roth account is taxable income in the year of conversion and counts fully toward that year's MAGI, even though the money is headed to an account that will never be taxed again.
What breaks this rule of thumb, in the direction of not counting, are the handful of income sources the tax code treats as already taxed or never taxed. A qualified Roth 401(k) or Roth IRA distribution isn't taxable income, so it contributes nothing to MAGI. An HSA distribution used for a qualified medical expense isn't taxable either. A Qualified Charitable Distribution is different from a QCD's cousin, take-the-RMD-then-donate-it: a QCD sends money directly from an IRA to charity and is excluded from AGI entirely, rather than showing up as income and then being partially offset by an itemized charitable deduction. Gifts, inheritances, and life insurance death benefits are also generally not taxable income and don't touch MAGI.
The account balance itself is never the issue. A $2 million traditional IRA sitting untouched contributes zero to this year's MAGI. The day you take a $50,000 distribution from it, whether voluntary or an RMD, that $50,000 becomes ordinary income and is added to everything else determining your IRMAA bracket for two years from now. This is exactly why RMDs are such a common IRMAA trigger for retirees who managed to avoid the surcharge in their early retirement years: the forced distributions starting at 73 can push MAGI over a threshold that voluntary, controllable withdrawals never did.
Capital gains and dividends from taxable brokerage accounts count as well, including mutual fund capital gain distributions that happen automatically in a fund even if you didn't sell anything yourself. This is a frequent surprise: a retiree who didn't sell a single share can still see a jump in MAGI from a fund's year-end capital gain distribution, since those distributions are taxable regardless of whether the shareholder initiated a sale.
Tax-exempt municipal bond interest deserves a specific callout because it behaves differently for IRMAA than it does for ordinary income tax. It's not part of AGI and isn't taxed federally, but it's specifically added back into the MAGI calculation used for IRMAA. So a retirement income strategy built heavily around municipal bonds for tax efficiency can still push MAGI over an IRMAA threshold even though the income never appears as taxable on the federal return.
Roth Conversions and QCDs Are the Two Real Levers Here
The two most useful tools for managing future IRMAA exposure both work by controlling when and how pre-tax money becomes taxable. Roth conversions, done deliberately in lower-income years, convert future forced RMD income (which you can't control the timing of) into money that will never touch MAGI again once it's in the Roth. Qualified Charitable Distributions do something similar for the charitably inclined: instead of taking an RMD, paying tax on it, and then donating with an itemized deduction that may not even help under the standard deduction, a QCD removes the RMD income from MAGI before it's ever counted.
If you're a few years from Medicare or already on it, get in the habit of asking, for any distribution, conversion, or capital gain you're considering: does this happen inside a Roth, an HSA for medical expenses, or as a QCD (none of which touch MAGI), or does it happen as an ordinary distribution, conversion, or taxable sale (all of which do)? That single question reframes most retirement income decisions as IRMAA decisions as much as tax-bracket decisions.
Where People Miscount What Feeds Into IRMAA
- Assuming a large 401(k) or IRA balance itself affects IRMAA; only actual distributions and conversions count, not the balance sitting in the account.
- Not realizing a Roth conversion counts fully as MAGI in the year of conversion, even though the destination account will never be taxed again.
- Confusing a Qualified Charitable Distribution with taking an RMD and then donating the cash; only the direct QCD bypasses AGI entirely.
- Ignoring mutual fund capital gain distributions as an IRMAA risk simply because no shares were personally sold.
- Assuming municipal bond interest is invisible to Medicare premium calculations because it's federally tax-exempt.