How a Reverse Mortgage Affects Social Security & Medicare Benefits [2026]

Why Reverse Mortgage Proceeds Are Not Considered Income

The single most important fact in this entire discussion: reverse mortgage proceeds are loan advances, not income. This classification comes directly from the Internal Revenue Service, the Social Security Administration, and the Department of Housing and Urban Development.

When a homeowner receives money from a HECM (Home Equity Conversion Mortgage), they are borrowing against their home equity. The money must eventually be repaid—either when the borrower sells the home, moves out permanently, or passes away. Because there is a repayment obligation, the IRS treats these funds the same way it treats any other loan proceeds: as a non-taxable event.

Based on Mo Abdel's 15+ years in mortgage lending, the confusion about reverse mortgages and government benefits is the single biggest obstacle preventing eligible seniors from accessing their home equity. In our experience helping California and Washington seniors, fewer than 30% of prospective borrowers understand the distinction between means-tested and non-means-tested benefits before their initial consultation.

Here is the core distinction that drives everything:

• Non-means-tested benefits are based on your work history, age, or disability status. Your assets and income do not affect eligibility. Social Security retirement, SSDI, and Medicare fall into this category.
• Means-tested benefits examine your income AND assets. If your countable resources exceed program limits, you lose eligibility. Medicaid, SSI, VA pension, and SNAP fall into this category.

Reverse mortgage proceeds do not count as income for any federal program. But they can count as assets for means-tested programs if the funds sit in your bank account past the end of the calendar month in which they were received. That one-sentence rule governs the entire relationship between reverse mortgages and government benefits.

Social Security Benefits: Retirement, SSDI, and SSI—Three Programs, Three Different Rules

“Social Security” is an umbrella term that actually covers three distinct programs, each with different rules regarding reverse mortgage proceeds. Understanding which program you receive is essential.

Social Security Retirement Benefits (OASI)

Impact: None whatsoever. Social Security retirement benefits under the Old-Age and Survivors Insurance (OASI) program are calculated based on your highest 35 years of earnings. Once you are receiving benefits, your payment amount is determined by your earnings history and the age at which you claimed. Neither your current income nor your asset level affects your benefit amount.

You can receive $500,000 from a reverse mortgage lump sum and your Social Security check will remain exactly the same the following month. The Social Security Administration does not consider loan proceeds when calculating or adjusting benefits.

One nuance worth noting: If you are between age 62 and your full retirement age (67 for most people today) and still working, the Social Security earnings test may reduce your benefits based on earned income. Reverse mortgage proceeds are not earned income, so they do not trigger this reduction. This is actually a strategic advantage—you can use reverse mortgage funds to supplement income during early retirement without triggering the earnings test penalty.

Social Security Disability Insurance (SSDI)

Impact: None. SSDI is an insurance program funded through payroll taxes. Eligibility is based on your work history and medical disability determination—not your financial resources. Like retirement benefits, SSDI is not means-tested. Reverse mortgage proceeds have absolutely no effect on SSDI payments or eligibility.

In our experience helping California and Washington seniors, we frequently work with homeowners who receive SSDI and are concerned that accessing their home equity will reduce their disability payments. It will not. The SSDI program does not examine your bank account balance or asset holdings at any point.

Supplemental Security Income (SSI)—The Critical Exception

Impact: Potentially significant. SSI is fundamentally different from Social Security retirement and SSDI. SSI is a means-tested welfare program administered by the Social Security Administration but funded through general tax revenue—not payroll taxes. SSI provides monthly payments to people who are aged (65+), blind, or disabled AND have limited income and resources.

The critical SSI resource limits for 2026 are:

• $2,000 for an individual
• $3,000 for a couple

Here is exactly how reverse mortgage proceeds interact with SSI:

1. Month of receipt: Reverse mortgage funds received during a calendar month are NOT counted as a resource for that month. The SSA provides a same-month exclusion.
2. Following month: Any reverse mortgage funds remaining in your bank account (or other countable asset) on the first day of the following month ARE counted as resources.
3. Over the limit: If your total countable resources exceed $2,000 (individual) or $3,000 (couple), you are ineligible for SSI for each month you remain over the limit.

Example: A senior receives a $5,000 reverse mortgage disbursement on March 10. She spends $4,200 on home repairs and living expenses during March. On April 1, she has $800 remaining from the disbursement plus her existing $1,500 in savings = $2,300 total countable resources. This exceeds the $2,000 limit by $300, making her ineligible for SSI in April.

Medicare: Parts A, B, C, D, and the IRMAA Surcharge Question

Medicare eligibility and basic benefits are not affected by reverse mortgage proceeds. However, the details matter because Medicare has multiple components with different rules.

Medicare Part A (Hospital Insurance)

Impact: None. Medicare Part A is available to anyone age 65+ who has earned at least 40 quarters of Social Security work credits (approximately 10 years of work). Most people pay no premium for Part A. Reverse mortgage proceeds have no bearing on eligibility, coverage, or premiums.

Medicare Part B (Medical Insurance)

Impact: None on eligibility; none on standard premiums. The standard Part B premium for 2026 is $185.00 per month. This premium is the same regardless of your assets or reverse mortgage activity. However, higher-income Medicare beneficiaries pay an additional amount called IRMAA (Income-Related Monthly Adjustment Amount).

The IRMAA Question—Why Reverse Mortgages Actually Help

IRMAA surcharges apply to Medicare Parts B and D when your Modified Adjusted Gross Income (MAGI) exceeds certain thresholds. For 2026, the IRMAA brackets begin at $106,000 for individual filers and $212,000 for joint filers (based on tax returns from two years prior).

Here is the key point: Reverse mortgage proceeds are not included in MAGI. They are not reported on your tax return. They do not appear on any IRS form. They are invisible to the IRMAA calculation.

This creates a powerful planning opportunity. Based on Mo Abdel's experience advising seniors in high-cost California and Washington markets, many retirees face a choice between withdrawing from IRAs/401(k)s (which increases MAGI and can trigger IRMAA) or tapping home equity through a reverse mortgage (which has no MAGI impact). For a senior in the first IRMAA bracket, the surcharge is approximately $74.00 per month for Part B alone—$888 per year. By using reverse mortgage funds instead of retirement account withdrawals, some borrowers save thousands annually in avoided IRMAA surcharges.

Medicare Advantage (Part C) and Prescription Drug Coverage (Part D)

Medicare Advantage plans and Part D prescription drug plans are not affected by reverse mortgage proceeds. Plan eligibility, benefits, and premiums remain the same regardless of reverse mortgage activity. The only exception is the Part D IRMAA surcharge, which follows the same MAGI rules as Part B—and since reverse mortgage proceeds are not MAGI, they do not affect Part D IRMAA either.

Medicaid: The Critical Exception Every Reverse Mortgage Borrower Must Understand

Medicaid is the benefit program where reverse mortgage planning requires the most caution. Unlike Medicare, Medicaid is a means-tested program that examines both income and assets when determining eligibility. For seniors, Medicaid primarily matters for long-term care coverage—nursing homes, assisted living, and in-home care that Medicare does not cover.

Medicaid Asset Limits (2026)

Medicaid asset limits vary by state, but the most common thresholds for 2026 are:

• Individual: $2,000 in countable resources
• Couple (one applying): Community spouse resource allowance of $157,920 maximum
• Exempt assets: Primary home (up to $713,000 equity in most states), one vehicle, personal belongings, pre-paid funeral

The critical rule: Your home is an exempt asset for Medicaid purposes while you live in it. This means your home equity does not count against Medicaid limits. However, the moment you convert that home equity into cash through a reverse mortgage and keep it in your bank account, those funds become countable assets.

The Month-End Rule in Detail

Medicaid follows the same month-end rule as SSI for reverse mortgage proceeds:

1. Month received: Reverse mortgage funds disbursed during a calendar month are excluded from the asset test for that month.
2. Next month onward: Any funds remaining in your accounts from the reverse mortgage disbursement are counted as available assets starting the first day of the following month.
3. Over the limit: If total countable assets exceed the Medicaid threshold, you are ineligible until assets are spent down below the limit.

California Medi-Cal Specifics

In California, the Medicaid program is called Medi-Cal. As of January 2024, California eliminated the asset test for most Medi-Cal eligibility categories. This means that for most California seniors, reverse mortgage proceeds sitting in a bank account will NOT affect Medi-Cal eligibility. California now uses an income-only test (138% of the Federal Poverty Level for most categories).

However, there are important exceptions:

• Long-term care Medi-Cal (nursing facility coverage) may still apply asset-related rules under certain circumstances
• Medi-Cal estate recovery can still place claims against your estate after death, including the home that secures your reverse mortgage
• Rules continue to evolve—always verify current requirements with a Medi-Cal specialist

Washington State has its own Medicaid rules (Apple Health), and asset considerations differ. In our experience helping Washington homeowners, the interplay between reverse mortgages and Apple Health long-term care coverage requires individualized planning with a benefits counselor who understands current state-specific rules.

VA Benefits, SNAP, and Other Federal Programs: What You Need to Know

VA Pension Benefits (Aid & Attendance)

VA pension benefits, including the Aid and Attendance allowance for veterans needing help with daily activities, are means-tested. The 2026 net worth limit for VA pension is $155,356 (adjusted annually for inflation). This includes all assets except your primary residence and personal property.

Reverse mortgage proceeds that are retained in bank accounts count toward this net worth limit. For veteran homeowners receiving VA pension, the same spend-within-the-month strategy applies. Draw only what you need from a reverse mortgage line of credit and spend it before the VA's assessment date.

SNAP Benefits (Food Stamps)

The Supplemental Nutrition Assistance Program (SNAP) has resource limits of $2,750 for most households and $4,250 for households with an elderly or disabled member (2026 figures). Reverse mortgage proceeds retained past month-end count as resources and can disqualify you from SNAP benefits.

Section 8 Housing Vouchers

For seniors who own their home but also receive Section 8 assistance for other housing costs, reverse mortgage proceeds are generally classified as assets rather than income. However, individual housing authorities may have specific policies. Consult your local housing authority before proceeding with a reverse mortgage if you receive Section 8 assistance.

Property Tax Exemptions

Many states offer property tax exemptions or deferrals for low-income seniors. In California, the Proposition 13 base-year value protection is not affected by reverse mortgages. However, some supplemental property tax exemptions based on income may require review, as large IRA withdrawals (which you might avoid by using a reverse mortgage instead) count as income for these programs.

7 Strategies to Protect Your Government Benefits While Using a Reverse Mortgage

Based on Mo Abdel's experience helping hundreds of seniors navigate benefit protection while accessing home equity, these seven strategies form a comprehensive protection framework:

How Your HECM Disbursement Method Affects Benefit Eligibility

The way you choose to receive your reverse mortgage funds has a direct impact on your benefit protection strategy. HECM borrowers have five disbursement options:

The line of credit is the gold standard for benefit protection. Available funds in your HECM credit line are not counted as assets by SSI, Medicaid, VA pension, or SNAP. Only when you withdraw funds and they land in your bank account does the clock start ticking on the month-end rule.

In our experience helping California and Washington seniors navigate this decision, approximately 65% of our HECM borrowers who receive means-tested benefits choose the line of credit option specifically for benefit protection purposes.

Tax Implications and MAGI Considerations: The Hidden Advantage

Beyond direct benefit eligibility, reverse mortgage proceeds provide a significant tax planning advantage that many seniors and their advisors overlook.

Here is the chain reaction that makes reverse mortgages tax-efficient:

1. Reverse mortgage proceeds are not taxable income. No 1099 form is issued. Nothing appears on your tax return.
2. Lower MAGI means lower taxation of Social Security benefits. Up to 85% of Social Security benefits can be taxed based on your combined income. Using reverse mortgage funds instead of IRA withdrawals keeps your combined income lower, reducing the taxable portion of your Social Security.
3. Lower MAGI avoids IRMAA. As discussed above, keeping your MAGI below the IRMAA thresholds saves $888+ per year in avoided Medicare surcharges.
4. Lower MAGI may preserve other benefits. Many state programs, property tax exemptions, and utility assistance programs use income thresholds. Reverse mortgage funds help you stay below those thresholds.
5. Interest may be deductible when the loan is repaid. The accumulated interest on a reverse mortgage becomes deductible when the loan is repaid (at sale or refinance). This can create a significant tax deduction for your estate or for you if you sell the home.

Quantified example: A California senior couple has $95,000 in annual income from Social Security ($40,000) and IRA withdrawals ($55,000). Their MAGI is $95,000. If they replace $30,000 of IRA withdrawals with reverse mortgage draws, their MAGI drops to $65,000. This reduces Social Security taxation, eliminates any IRMAA risk, and may qualify them for additional state benefits. The annual tax savings in this scenario typically range from $2,500 to $5,000.

2026 Benefit Limits and Thresholds: Complete Data Hub

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Related Resources

• Complete Guide to Reverse Mortgages 2026
• What Is a Reverse Mortgage? Complete Guide
• HECM vs HELOC for Seniors: Which Is Better?
• Reverse Mortgage Line of Credit Growth Rate Explained
• When NOT to Get a Reverse Mortgage
• Reverse Mortgage California: State Guide