Two Retirees Buy the Same $500,000 Home as Mortgage Rates Top 7%. One Uses a Reverse Mortgage, the Other Withdraws $250,000 From an IRA. Medicare Counts Only One as Income

Consider two single retirees on Medicare buying $500,000 homes. With conventional mortgage rates averaging 7.11% as of November 12, 2026, one explores a reverse mortgage. Each has $100,000 of other income and $250,000 in cash from a previous home sale. Buyer A seeks a home equity conversion mortgage (HECM) for Purchase to finance the balance, subject to the lender’s approved loan amount. Buyer B instead withdraws $250,000 from a fully pretax traditional IRA to complete an all-cash purchase. Two years from now, Buyer B could face a Medicare surcharge that Buyer A never sees.

Only about 8% of Part B enrollees pay this income surcharge. A single filer who remains at or below $109,000 never pays it. A large one-time withdrawal is how average retirees cross that line. The 2026 Medicare rules from the Centers for Medicare & Medicaid Services (CMS) fact sheet govern the figures below.

How a Reverse Mortgage Buys a Home Without Adding Income

HECM borrowers must be 62 or older, must live in the home as their principal residence and must see a HUD HECM counselor before they apply. At closing, the buyer must cover the difference between the approved HECM loan and the purchase price, plus any fees not financed. That money can come from savings, a previous home sale or other permitted assets. HUD generally prohibits borrowed funds that leave the buyer with another financial obligation. FHA sizes the loan off the youngest borrower’s age, so older buyers qualify for more.

Reverse mortgage proceeds generally aren’t taxable income and don’t raise Medicare’s income calculation. Assuming Buyer A uses existing cash for the required down payment and has no other income changes, her modified adjusted gross income (MAGI) remains $100,000. Under the 2026 brackets, she pays the standard $202.90 Part B premium.

Why the IRA Withdrawal Shows Up on Your Medicare Bill

Social Security calculates the Medicare surcharge, called IRMAA, using modified adjusted gross income. That’s adjusted gross income plus tax-exempt interest, including interest from municipal bonds. Withdrawals from a traditional IRA funded entirely with pretax contributions count as taxable income. Buyer B’s $250,000 withdrawal pushes her income to $350,000.

IRMAA looks back two years, so a 2026 withdrawal sets 2028 premiums. CMS hasn’t published 2028 brackets yet. This table uses the 2026 schedule as an illustration.

A married couple filing jointly at $350,000 lands one tier lower: $324.60 extra for Part B plus $60.40 for Part D, per spouse. That’s $9,240 a year for the household.

Income tax hits harder. Assuming both buyers are at least 65, all $100,000 of their other income is taxable ordinary income and they claim the available standard and senior deductions, the $250,000 withdrawal adds approximately $73,188 in federal income tax. Add one year of IRMAA at the illustrated 2026 rates, and Buyer B faces about $79,543 in combined additional costs, before state taxes. If taxes are withheld from the withdrawal, she would need other cash or a larger distribution to have $250,000 available at closing.

The IRA withdrawal itself isn’t a qualifying life-changing event for Form SSA-44. However, a separate qualifying event, such as retirement or a spouse’s death, may allow a beneficiary to request a lower IRMAA determination. The spike does fade: if Buyer B’s income goes back to $100,000 in 2027, her 2029 premiums drop back to the standard rate. (IRMAA is one of several Medicare surcharges that catch retirees off guard, and we mapped out the rest in a free guide to Medicare’s hidden bills.)

Reverse Mortgage Costs Hide in a Growing Loan Balance

Buyer A skips the tax bill but pays in other ways. HUD counseling covers origination fees, financed closing costs, mortgage insurance and the Total Annual Loan Cost. Interest and mortgage insurance add to the loan balance every month for as long as she remains, which reduces the equity left for her heirs. She still pays property taxes and hazard insurance, handles repairs and must keep living in the home. Falling behind on those can make the loan due. Lenders also run a financial assessment and can require a Life Expectancy Set-Aside to cover taxes and insurance.

Buyer B faces an immediate tax bill, while Buyer A takes on a loan balance that grows with interest and fees. Neither choice automatically costs less. The comparison depends on the HECM terms, years in the home, tax consequences, future home value and what Buyer B’s remaining savings could otherwise earn. A lender’s Total Annual Loan Cost disclosure helps show the reverse mortgage’s projected expense.

Three Steps to Take Before You Sign or Withdraw

1. Get a real HECM for Purchase quote. Ask for the principal limit at your age, the exact cash needed at closing and the Total Annual Loan Cost over the years you expect to remain in the home.
2. Price the IRA withdrawal at its gross amount. Add the withholding needed to net your closing cash, then check that MAGI against both the Part B and Part D tables.
3. Split the withdrawal if the closing date allows it. Taking half in December and half in January spreads the income over two tax years. That can drop each year into a lower tax bracket and a lower IRMAA tier. Then compare that total with the reverse mortgage’s expected balance at year 10.

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