Retirement Accounts- IRA's & 401(K)'s & Medicaid Eligibility

Retirement accounts are often one of the larger assets that a potential Medicaid applicant owns. It is important to understand how these accounts affect Medicaid eligibility.

A Medicaid applicant is financially eligible when he or she has resources (assets) no greater than thirteen thousand eight hundred dollars ($13,800.00). If an applicant owns a retirement account with a value greater than $13,800.00, the applicant is financially ineligible for Medicaid benefits. One would think that the value of the retirement account is easily obtained by looking at the statement. However, Medicaid values the account as the amount of money that the individual can currently withdraw. If there is a penalty for early withdrawal, the value of the retirement account is the amount available after the penalty deduction. Any income taxes due are not deductible in determining the resource's value.

One way to make an applicant with a retirement account Medicaid eligible could be to transfer the asset to the applicant's spouse (if available). Unlike transfers (gifts) to children or others, transfers from a Medicaid applicant to his/her spouse are an exception to the Medicaid transfer penalty rules even within the five year look-back period. However, in order to transfer the retirement account there must be a cash-in and there will be an income tax liability.

Another way to make an applicant eligible, without having to cash-in the account and retain ownership of the retirement account, is to start receiving periodic payments from the retirement account. Once an individual is in receipt of or has applied for periodic payments, the principal in the retirement fund is not a countable resource.

The next question is - how much are the periodic payments that must be taken? Medicaid regulations state that the individual must choose the maximum income payment that could be made available over the individual's life time; specifically, the table used is the single life table. Medicaid does not allow the applicant to consider marital status when determining how much must be periodically taken from the account.

The next question is - how does this income affect Medicaid eligibility? Once an individual is receiving periodic payments, the payments are counted as unearned income on a monthly basis, regardless of the actual frequency of the payment. For example, if the periodic benefit is received once a year, the amount is to be divided by twelve to arrive at a monthly income amount. If the Medicaid applicant earns more than $50.00 per month, the excess income (over $50.00) would be income that, in effect, would be paid to the nursing home providing the skilled care and Medicaid would pay the difference of the monthly nursing home cost.

The net effect of applying for periodic payments from a retirement account is the exclusion of the retirement account from being considered an available resource, creating a countable income stream, but protecting the principal of the account. Consideration of the alternative plans (transfer the account or create periodic payments) must be made for each individual within their overall Medicaid plan.

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