Qualifying for Medicaid when You Have an IRA or 401K

Eligibility for Medicaid requires you to demonstrate financial need. How does it work when you have a sizable retirement account?

As we discussed earlier , your assets are carefully scrutinized when you apply for Medicaid. Most personal savings and investment accounts, along with stocks, bonds, and real property are countable in the Medicaid calculation. A primary home, personal belongings, one car, exempt restitution funds and a minimal monthly allowance are exempt from consideration.

Retirement funds, like those in a 401K or individual retirement account (IRA) could be considered as an asset or exempt, depending on their status. If you have considerable value in your retirement accounts, or are already receiving payment from your retirement plan, you may not be eligible for Medicaid without some planning.

Asset verses income: The importance of “pay out”

Medicaid rules are applied at the state level, so it is important to keep your state guidelines in mind when creating your long-term care plan. Overall, here are some important points to keep in mind as you talk with your estate planning attorney about qualifying for Medicaid:

  • The status of your retirement account makes a big difference in whether it is a countable or an exempt asset for purposes of calculating Medicaid eligibility. A retirement account that is placed in “pay out” mode is considered as exempt in New York but not in New Jersey. The required minimum distribution from the plan is counted as income. The amount of the distribution is figured into your Medicaid calculation, but the entire value of your retirement plan is not.
  • Another option for IRA or 401K proceeds is to cash out the assets and shelter the value. While you may pay a significant penalty for cashing out the account plus income taxes, it may be far less than what you would personally pay over time for a nursing home.

While there are broad strategies and tools used for Medicaid planning, the circumstances of your situation, your family, and your wishes drive how your long-term care plan will look.

Plan sooner than later to avoid Medicaid look-back rules

Depending on the guidelines in your state, the Medicaid program has the right to “look back” three to five years into disbursements made from your estate. The reason for the glance backward is to ensure you are eligible for the Medicaid benefits that you seek, and do not appear to have fraudulently hidden assets in order to meet the Medicaid eligibility standard. Creating effective Medicaid and estate plans well in advance of when they might be triggered is essential.

Skilled Medicaid planning attorneys serving New York and New Jersey

Plan now for the future. Lissner & Lissner LLP is an experienced estate and Medicaid planning law firm offering straightforward, experienced advice to help you and your family move forward. Contact us or call (212) 307-1499 today.

Micheal Lissner
About the Author: Michael Lissner
Micheal D. Lissner is an experienced trust and estate planning and administration attorney serving the New York City area. He handles cases ranging from estate planning to trust administration, medicaid planning, elder law, and representation of survivors of the Holocaust and their heirs