If you're 62 or older and thinking about a reverse mortgage, you may wonder whether the money you receive will affect your Social Security or Medicare. I'm glad you're asking — it's one of the most common concerns. The good news: reverse mortgage proceeds do not affect your Social Security or Medicare benefits. Here's why, and what you should know about other programs.
No Effect on Social Security
Reverse mortgage proceeds are loan advances, not income. The IRS does not treat them as taxable income, and the Social Security Administration does not count them as earnings or income for benefit purposes. So your Social Security benefits will not be reduced or taxed because you took a lump sum, set up a line of credit, or receive monthly payments from a HECM. You can use the proceeds for anything — supplementing income, home repairs, healthcare — without worrying that your Social Security check will go down. For more on how reverse mortgages work, see our guide for homeowners.
No Effect on Medicare
Medicare is not means-tested. Eligibility is based on age (or disability), not on your income or assets. So receiving reverse mortgage proceeds does not affect your Medicare eligibility or your premiums for Part B or Part D. You can use the money from your reverse mortgage without any impact on your Medicare coverage.
Potential Medicaid Considerations
Medicaid is different. It is means-tested: eligibility and benefits can depend on your income and countable assets. Rules vary by state. In general, the home you live in is often excluded or treated favorably as a primary residence, but cash you receive from a reverse mortgage — and how you hold or spend it — could count as an asset or affect eligibility if it pushes you over your state's limits. If you might need Medicaid in the next few years (e.g., for long-term care), it's important to talk to an elder-law attorney or a qualified advisor in your state before drawing large sums from a reverse mortgage. This isn't to scare you; it's to make sure you have a plan that works for your situation. Our FAQ touches on some of these topics, but state-specific advice is essential for Medicaid.
SSI Considerations
Supplemental Security Income (SSI) is also means-tested. If you receive SSI, money you take from a reverse mortgage and keep in the bank could count as a resource and affect your SSI eligibility or benefit amount. Again, rules are state-specific and complex. If you're on SSI or might be, speak with a benefits specialist or attorney before taking large draws so you don't accidentally disqualify yourself.
Why Proceeds Aren't Income and the Tax-Free Nature
From a tax perspective, the IRS treats reverse mortgage proceeds as loan proceeds, not income. You're not selling the home; you're borrowing against it. So there's no taxable event when you receive the money. You also don't get a tax deduction for the interest as it accrues (that typically comes when the loan is paid off). The main takeaway: you can use your reverse mortgage funds without worrying about federal income tax on the proceeds themselves, and without reducing your Social Security or Medicare.
If you'd like to explore how much you might access with a reverse mortgage, try our calculator. And if you have questions about how proceeds could interact with your benefits, reach out — I'm happy to point you toward the right resources and walk through the basics in plain English.
Have questions about reverse mortgages or want to see how much you might access? Try our calculator or schedule a conversation with Jerry.