Trust Income and Medicare IRMAA: How Distributions Affect Your Premiums

Trusts own assets, generate income, and may or may not distribute that income to you — depending on the trust structure. For Medicare IRMAA purposes, the critical question is: whose tax return does the income land on? If it lands on yours, it raises your MAGI and potentially your Medicare Part B and Part D premiums two years later. If it stays inside a non-grantor trust, it doesn't. The answer varies by trust type, and most retirees don't learn the difference until they receive an unexpected IRMAA notice.

IRMAA MAGI: what counts

IRMAA (Income-Related Monthly Adjustment Amount) is the Medicare surcharge added to your Part B and Part D premiums when your MAGI exceeds the threshold for your filing status. For 2026, the single-filer threshold is $109,000; for married filing jointly, $218,000.¹

MAGI for IRMAA purposes = adjusted gross income (AGI) from your 1040 plus tax-exempt interest. Most income types — wages, interest, dividends, capital gains, retirement distributions, pension income — flow into AGI. Tax-exempt income (such as municipal bond interest) doesn't go into AGI, but SSA adds it back when computing IRMAA MAGI. This add-back matters significantly for charitable remainder trusts.

Three trust structures, three different IRMAA rules

1. Grantor trusts: all trust income appears on your 1040

A grantor trust is one where the grantor — typically you — retains certain powers or interests that make the IRS treat you as the owner for income tax purposes under IRC §§671–679. Common grantor trusts include:

• Revocable living trusts — the most common, used primarily for probate avoidance
• Spousal Lifetime Access Trusts (SLATs) — irrevocable, but grantor pays income tax while spouse benefits
• Grantor Retained Annuity Trusts (GRATs) — during the annuity term
• Intentionally Defective Grantor Trusts (IDGTs) — used in estate planning to freeze asset values

For all grantor trusts, the trust's income, deductions, and credits flow directly onto your Form 1040 — as though you held the assets personally. The trust doesn't file a separate income tax return for these items. This means interest, dividends, rental income, and capital gains from trust assets appear on your Schedules B, D, and E, flow into your AGI, and count fully toward your IRMAA MAGI — whether or not any cash is actually distributed to you.

This surprises many retirees who assume that because the trust is the legal owner, the income doesn't count toward their Medicare premiums. It does. The trust is transparent for income tax and IRMAA purposes.

2. Non-grantor irrevocable trusts: only distributed income counts

A non-grantor irrevocable trust is a separate taxpayer. It files its own Form 1041 and either retains income (paying tax at the trust's compressed rates) or distributes it to beneficiaries. Only the portion actually distributed to you and reported on a Schedule K-1 flows into your AGI and MAGI.²

The K-1 from a trust (Form 1041, Schedule K-1) passes through the character of the income: ordinary interest, dividends, rental income, and capital gains each retain their character on your 1040. All of it counts toward your MAGI — and therefore toward IRMAA — in the year of distribution.

Income retained inside the trust is taxed to the trust at compressed rates (37% on amounts over approximately $15,650 in 2026) and does not raise your MAGI. For discretionary beneficiaries facing IRMAA bracket cliffs, there is sometimes a legitimate trade-off between keeping income in the trust (higher trust-level tax, no IRMAA) versus distributing it (lower income tax rate, but IRMAA exposure). That trade-off requires side-by-side modeling.

3. Charitable remainder trusts: the four-tier ordering rule

A charitable remainder trust (CRT) pays you an annuity or unitrust amount for life or a term of years, then distributes the remainder to charity. CRTs are tax-exempt internally — they don't pay tax on investment gains or income. But when the trust distributes to you, each payment is characterized using a four-tier ordering rule under IRC §664(b):³

1. Tier 1 — Ordinary income: to the extent of the trust's current and prior accumulated ordinary income (interest, non-qualified dividends)
2. Tier 2 — Capital gains: accumulated long-term and short-term capital gains
3. Tier 3 — Other income: tax-exempt income (such as municipal bond interest earned inside the trust)
4. Tier 4 — Return of corpus: non-taxable return of the original contribution to the trust

Distributions flow through these tiers in order. For IRMAA:

• Tier 1 and 2 distributions flow into your AGI → counted fully for IRMAA MAGI
• Tier 3 distributions are tax-exempt, so they don't appear in AGI — but SSA adds tax-exempt interest back into MAGI. Tier 3 CRT distributions still raise your IRMAA MAGI even though you pay no federal income tax on them
• Tier 4 (return of corpus) has no IRMAA impact — it is not income

Trust type comparison: IRMAA impact at a glance

Worked example: a discretionary trust distribution and the IRMAA cliff

Patricia is 71, single, and on Medicare. Her MAGI from Social Security and a small pension is $88,000 — comfortably below the $109,000 single-filer IRMAA threshold. She is a discretionary beneficiary of her late mother's irrevocable non-grantor trust, which holds rental properties and a bond portfolio.

In 2024, the trustee distributes $28,000 to Patricia (rental income from Schedule E + interest from Schedule B), reported on a K-1. Patricia's 2024 MAGI becomes $88,000 + $28,000 = $116,000 — which falls in the $109,000–$137,000 Tier 1 bracket for single filers. Two years later, in 2026, her Part B premium is $284.10/month instead of $202.90 (+$81.20/month), and her Part D surcharge is $14.50/month. Total extra: $1,148/year — triggered by a discretionary distribution that was never modeled against her Medicare premium calendar.

If the trustee had distributed $20,000 instead — keeping Patricia's MAGI at $108,000, just under the threshold — there would have been no IRMAA and she would have saved $1,148. The distribution timing and size are within the trustee's discretion. A year-end MAGI projection meeting with the trustee before December 31, 2024 would have caught this.

2026 IRMAA brackets

Per person. Premiums per CMS November 2025 announcement. MFS filers: standard threshold applies ($109,001 triggers Tier 5 directly).¹

Calculator: trust distribution IRMAA impact

Five strategies to manage trust income and IRMAA

1. Coordinate discretionary non-grantor trust distributions before year-end

If you are a discretionary beneficiary of a non-grantor trust, the trustee may have flexibility over the timing and size of distributions. Request a MAGI projection meeting before December 31 each year. Identify the nearest IRMAA bracket cliff. If your current MAGI is $95,000 and the threshold is $109,000, the trustee knows to keep your distribution below $14,000 — or defer it entirely to a year where your other income is lower. Unlike RMDs or pension checks, discretionary trust distributions give you actual planning leverage if you use it.

2. Use QCDs to offset trust income if you're 70½ or older

Qualified Charitable Distributions (QCDs) from your own traditional IRA reduce your AGI — and MAGI — dollar for dollar, up to $111,000 per person in 2026.⁴ If your grantor trust portfolio generates $30,000 of dividend and interest income that you can't avoid, a $30,000 QCD to a charity of your choice offsets that income in your MAGI calculation. The QCD must come from your own IRA (not the trust's assets), and you must be 70½ or older at the time of distribution.

3. Weigh trust-level tax against IRMAA exposure for non-grantor trusts

For non-grantor trusts with discretionary distribution authority, the trustee can retain income in the trust to avoid triggering your IRMAA surcharge. The trade-off: the trust pays 37% on ordinary income above roughly $15,650 in 2026 — much higher than most individuals' marginal rates, but potentially worthwhile if the alternative is paying a $4,619 or $6,354 annual IRMAA surcharge per person. Model the math. Often retaining the income in the trust is costlier in aggregate; sometimes it isn't.

4. Track CRT tier pools and plan distributions accordingly

If you are a CRT income beneficiary, request a tier pool statement from the trustee or administrator each year (required to be tracked on Form 5227). Knowing how much ordinary income (Tier 1), capital gains (Tier 2), and tax-exempt income (Tier 3) remain in the trust helps you project when your distributions will begin shifting from Tier 2 to Tier 3 — and whether the tax-exempt label provides any real IRMAA relief (it doesn't for the tax-exempt add-back portion). If the CRT uses a CRUT (unitrust) structure rather than a CRAT (annuity), the annual payout fluctuates with trust value, giving some implicit smoothing.

5. Use the two-year look-back window to plan ahead

Because IRMAA is based on MAGI from two years prior, a large trust distribution in 2024 gives you until December 31, 2024 to offset it — and if that window closes, you can focus on managing 2025 income (which affects 2027 premiums). An advisor who models year-by-year MAGI and its two-year-forward IRMAA consequences can sequence QCDs, Roth conversions, and trust distributions to minimize cumulative premium costs across multiple years.