Generally, no. Loans from a life insurance policy that is not a modified endowment contract and stays in force are not taxable income. That means they do not count in the modified adjusted gross income Medicare uses for IRMAA surcharges, or in the combined income that decides how much of your Social Security is taxed.
Key takeaways
- For 2026, IRMAA surcharges on Medicare Part B and Part D begin above $109,000 of MAGI for individuals and $218,000 for joint filers.
- Up to 85% of Social Security benefits can be taxed once combined income passes $34,000 (single) or $44,000 (joint).
- Policy loans do not show up in either calculation; 401(k) and IRA withdrawals do.
- The policy must stay in force: a lapse with a loan outstanding can create taxable income.
How IRMAA works
Medicare’s income-related monthly adjustment amount (IRMAA) adds a surcharge to Part B and Part D premiums for people with higher income. For 2026 the standard Part B premium is $202.90 a month, and surcharges start when modified adjusted gross income is above $109,000 for individuals or $218,000 for married couples filing jointly. Medicare uses your tax return from two years earlier, so 2024 income sets 2026 premiums.
Because the brackets are cliffs, one extra dollar of income can raise premiums for the whole year. A large IRA withdrawal, a Roth conversion or a capital gain can push someone over.
How Social Security is taxed
The IRS looks at your combined income: adjusted gross income, plus nontaxable interest, plus half of your Social Security benefits. For single filers, up to 50% of benefits can be taxed above $25,000 and up to 85% above $34,000. For joint filers, the levels are $32,000 and $44,000. These thresholds are not indexed for inflation, so more retirees cross them every year.
Every dollar of retirement income is taxed somewhere. The planning question is which bucket it comes from, and in which year.
Where policy loans fit
A policy loan is a loan against your cash value, not income, so it is not reported on your tax return. Used alongside retirement account withdrawals, it lets a retiree take the income they need while keeping reported income under an IRMAA bracket or a Social Security threshold.
- Withdrawals up to your basis (premiums paid) are also generally not taxable.
- Roth IRA qualified distributions are tax-free too; cash value is another source alongside them.
- Traditional IRA and 401(k) withdrawals, pensions and most annuity income are taxable and count toward both calculations.
The catches
Policy loans accrue interest, and they reduce the death benefit. If a policy lapses or is surrendered with a loan outstanding, the gain above your basis becomes taxable in that year, which could cause the very IRMAA and tax problem you were avoiding. Income from a policy needs to be planned so the policy stays in force for life.
This also only works if the policy was funded years earlier. It is a strategy to set up in your 40s and 50s, not the year you retire.
Frequently asked questions
Are life insurance withdrawals taxable?
Withdrawals up to your basis, the premiums you paid, are generally not taxable. Amounts above basis are taxable unless taken as a policy loan.
Do I pay interest on a policy loan?
Yes. Policy loans accrue interest. Some policies offer fixed-rate loans and others variable or indexed loans, each with different risks.
Does this work with a MEC?
No. Loans and withdrawals from a modified endowment contract are taxed as income first, so they can count toward IRMAA and Social Security taxation.
Which year’s income sets IRMAA?
Medicare generally uses your tax return from two years earlier. For 2026 premiums, that is your 2024 return.
Financial professionals: download our free one-pager, Why Clients Buy Accumulation IUL, or request an illustration. Individuals: see who buys cash value life insurance, and who it’s not for, or ask Tim a question below.
Sources: CMS: 2026 Medicare Parts A & B premiums · SSA: income taxes on benefits
General information, not tax, legal or investment advice. Tax treatment depends on proper policy design, keeping the policy in force and current law. Policy features, riders and availability vary by carrier and state. Illustrations are not guarantees.
Reviewed by Tim Fuller on 2026-09-30
Tim Fuller
President, SRS Inc.
Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.
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