How Retirement Savings (IRAs, 401Ks or Pensions) Impact Medicaid Long Term Care Eligibility

Last updated: February 22, 2022

 

Summary

The question of whether retirement savings plans, such as IRAs, 401(k)s, and pensions, impact Medicaid eligibility is complicated. There are no federally set rules on these plans and Medicaid eligibility; Each state sets its own rules. Adding to the complexity are other variables, such as the type of retirement savings plan, payout status, payout amount, one’s other income and assets, and marital status.

The bad news is that it is likely an applicant’s retirement savings plan will be considered by Medicaid as either income or an asset when determining eligibility for long term care. The good news is that most candidates can still gain Medicaid eligibility and preserve some or all of their savings for a spouse or another family member.

In states that consider a Medicaid applicant’s retirement savings account as an asset, it will count against Medicaid’s asset limit for eligibility. If it is in payout status, and therefore generating income, it is considered as income and will count against Medicaid’s income limit for eligibility. While this does not automatically mean the candidate will be Medicaid ineligible, this is common because Medicaid’s income and asset limits are so low.

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Returning to the good news, even if a candidate is over the limit(s), there exist exceptions and eligibility planning strategies to help them become Medicaid eligible. Examples include allocating income or assets to a non-applicant spouse, “spending down”, or purchasing certain specifically designed financial products. These strategies are complicated, and it is recommended one work with a Medicaid planning professional.

 

How IRAs / 401(k)s Impact Medicaid Eligibility

IRAs and 401(k)s are considered assets by Medicaid. Whether or not a state’s Medicaid agency considers them a non-exempt (countable) or exempt (non-countable) asset is state-specific. In a handful of states, such as Kentucky and North Dakota, an applicant’s IRA / 401(k) is automatically exempt, and in approximately 15 states, a non-applicant spouse’s IRA / 401(k) is automatically exempt. Other states will exempt one’s IRA / 401(k), but requires it to be paying out. Still other states do not exempt retirement savings accounts regardless of payout status. If a IRA / 401(k) is in payout status, and therefore an exempt asset, the payout will still count as income towards Medicaid eligibility. The rules for IRAs and 401(k)s also extend to 403(b)s, Keoghs, and TSAs.

 

How Employment Pensions Impact Medicaid Eligibility

Pensions are treated differently than are IRAs and 401(k)s. Instead of being an asset, they are generally considered a stream of income. This is because access to the principal is usually restricted and lump-sums cannot be taken. However, employees are sometimes given the option of taking a lump-sum payment at retirement rather than receiving monthly payments. If a lump-sum is taken, the pension will count as an asset.

 Spend Down Calculator
Determine if a Medicaid candidate’s (or their spouse’s) IRA or 401(k) will be counted as an asset. Also find out what other assets must be “spent down” to be eligible. Start here

 

Table: 50 State Policies on Counting IRAs and 401(k)s for Medicaid Eligibility

 

States that Count IRAs and 401(k)s When Applying for Medicaid (updated Feb. 2022)
Applicant’s IRA / 401(k) Must Be in Payout (RMD) Status Applicant’s Spouse’s IRA / 401(k) Must Be in Payout (RMD) Status
Alabama Countable N/A Countable N/A
Alaska Countable N/A Exempt No
Arizona Countable N/A Countable N/A
Arkansas Countable N/A Countable N/A
California Exempt Yes Exempt No
Colorado Countable N/A Countable N/A
Connecticut Countable N/A Countable N/A
Delaware Countable N/A Exempt No
District of Columbia Exempt No Exempt No
Florida Exempt Yes Exempt Yes
Georgia Exempt Yes Exempt No
Hawaii Countable N/A Countable N/A
Idaho Exempt Yes Exempt No
Illinois Countable N/A Countable N/A
Indiana Countable N/A Exempt No
Iowa Countable N/A Countable N/A
Kansas Countable N/A Exempt No
Kentucky Exempt No Exempt No
Louisiana Countable N/A Countable N/A
Maine Countable N/A Countable N/A
Maryland Countable N/A Countable N/A
Massachusetts Countable N/A Countable N/A
Michigan Countable N/A Countable N/A
Minnesota Countable N/A Countable N/A
Mississippi Exempt Yes Exempt Yes
Missouri Countable N/A Countable N/A
Montana Countable N/A Countable N/A
Nebraska Countable N/A Countable N/A
Nevada Countable N/A Countable N/A
New Hampshire Countable N/A Countable N/A
New Jersey Countable N/A Countable N/A
New Mexico Countable N/A Countable N/A
New York Exempt Yes Exempt Yes
North Carolina Countable N/A Countable N/A
North Dakota Exempt No Exempt No
Ohio Exempt* Yes Exempt* Yes
Oklahoma Countable N/A Countable N/A
Oregon Countable N/A Countable N/A
Pennsylvania Countable N/A Exempt No
Rhode Island Exempt Yes Exempt Yes
South Carolina Exempt Yes Exempt Yes
South Dakota Countable N/A Countable N/A
Tennessee Countable N/A Countable N/A
Texas Countable† N/A Countable† N/A
Utah Countable N/A Countable N/A
Vermont Exempt Yes Exempt Yes
Virginia Countable N/A Countable N/A
Washington Countable N/A Countable N/A
West Virginia Countable N/A Exempt No
Wisconsin Countable N/A Exempt No
Wyoming Countable N/A Exempt No
*While current Ohio laws allow the exemption of IRAs in payout status, not all counties apply this exemption. Previous rules counted the IRAs of both spouses as assets, regardless of whether the owner was receiving payments. Some OH counties still consider IRAs to be countable assets.

Texas Administrative Code Rules are open to interpretation, and depending on the source, may be interpreted differently. 

 

Importance of Medicaid’s Asset Limit

For long-term care Medicaid eligibility, such as nursing home care or in-home care assistance via a HCBS (home and community based services) Medicaid waiver, an applicant must have limited assets (resources).

While the 2022 asset limit is state-specific, most states, including California, Florida, and Texas, set a limit of $2,000 for an applicant and $3,000 for a couple. Some exceptions to the rule are New York, which has an asset limit of $16,800 for an individual and $24,600 for a couple, and Minnesota, which allows up to $3,000 in assets for an individual and $6,000 in assets for a couple. To see state-specific asset limits, click here.

Many assets are not counted towards Medicaid’s asset limit; They are exempt. These exemptions generally include one’s primary home, household furnishings, a vehicle, and pre-paid funeral/burial arrangements. In some states, an applicant’s and / or applicant spouse’s 401(k) or IRA is also exempt.

 

Factors Impacting How Retirement Plans Impact Medicaid Eligibility

Whether or not retirement accounts are counted as assets depends on the state in which one lives and the circumstances surrounding the retirement plan. There are also other factors.

Payout Status
Some states do not count an IRA or 401(k) as an asset if it is in payout status. Before the SECURE (Setting Every Community Up for Retirement Enhancement) Act passed in December of 2019, it was generally required that persons began withdrawing the Required Minimum Distribution (RMD) from their plans at the age of 70.5. The RMD is the minimum amount that must be withdrawn from one’s retirement plan in any given year. RMDs are required for all employer sponsored retirement plans, as well as traditional IRAs. However, with the SECURE Act, the required age of withdrawing the RMD was pushed back to 72. The RMD is calculated based on IRS life expectancy charts. Each month, an individual will receive the same pre-calculated payment amount. To calculate your RMD, click here. Please note: Florida uses a different life expectancy chart.

California, Florida, Georgia, and New York, among a few other states, do not count an applicant’s IRA as an asset for Medicaid eligibility if it is in payout status. However, the monthly payments are counted as income. Many states are very strict when it comes to retirement savings plans, and even IRAs and 401(k)s in payout status are not exempt. Examples include Arizona, Massachusetts, Missouri, and Pennsylvania.

Payout Amount
While an IRA or 401(k) may not count as an asset, an applicant needs to be aware that a retirement plan in payout status may push them over Medicaid’s income limit. As a general rule of thumb, in 2022, most states have an income limit of $2,523 / month for an applicant. If one’s payout, plus their other income (such as Social Security) is over the income limit, they will likely be ineligible for Medicaid.

Type of Retirement Savings Plan
Roth IRAs do not have a Required Minimum Distribution (RMD). Remember, the RMD is the smallest amount that one must withdraw annually from their retirement savings plan. Since Roth IRAs do not have a RMD, they cannot be put in payout status. In fact, an owner of a Roth IRA does not have to withdraw any money from their account their entire life. Therefore, Roth IRAs are generally counted as assets. Unless a state automatically exempts one’s IRA, Roth IRAs are generally considered a countable asset.

Ability to “Cash Out” the Plan
If one is able to withdraw, or put another way, “cash out” their full retirement plan, it may be counted as an asset. This is because the funds are available to the individual, similar to having cash in a savings or checking account.

Marital Status
Assets of a married couple are generally considered jointly owned, regardless of whose name is on the asset. For example, if a Medicaid applicant is married and their non-applicant spouse has a checking account in only their name, it will be counted towards Medicaid’s asset limit. In some states, a non-applicant spouse’s retirement account is an exception and is not counted towards the asset limit.

In Pennsylvania and California, the retirement plan of a community spouse (non-applicant spouse) is not considered when determining the applicant spouse’s Medicaid eligibility. In other words, it is exempt. In other states, such as New York, the non-applicant spouse’s retirement account is exempt as long as it is in payout status. Yet other states, like Colorado, count the retirement savings plans of both the applicant spouse and non-applicant spouse as assets.

The income of a non-applicant spouse applying for nursing home Medicaid or a HCBS Medicaid waiver is not counted towards the income eligibility of their applicant spouse. Therefore, if a non-applicant spouse’s IRA or 401(k) is in payout status, the monthly payments are disregarded. This means the income is not used when calculating an applicant spouse’s income eligibility. Income is counted differently when one applies for the regular state Medicaid program; The income of both the applicant and non-applicant spouse is counted towards the applicant’s income eligibility. Learn more about how Medicaid counts income here.

 

Planning Strategies to Become Eligible with a Retirement Plan

There are various planning techniques for persons who want to apply for Medicaid, but have a retirement savings account.

Put in Payout Status
A 401(k) or IRA that is paying out the required minimum distribution may be exempt from Medicaid’s asset limit. With this planning strategy, one must be careful not to exceed Medicaid’s income limit, as the payouts will be counted as income. This is not an option for Roth IRAs; They are not eligible to be put in payout status.

Cash it Out / Spend Down
A retirement savings plan can be cashed out and the extra assets “spend down” on non-countable assets. This provides a means to turn non-exempt assets into exempt assets. Examples include purchasing a pre-paid burial/funeral plan or a life insurance policy (most states allow up to $1,500 face value), making home modifications to allow aging in place (i.e., stair lifts, wheelchair ramps, walk-in tubs, and grab bars), and purchasing a new vehicle. One could also spend down excess assets (and meet Medicaid’s asset limit) by paying for long-term care, such as in-home personal care assistance, assisted living, and nursing home care.

Allocation to a Spouse
If only one spouse of a married couple is applying for nursing home Medicaid or home and community based services via a Medicaid waiver, there are spousal impoverishment rules to protect the non-applicant spouse (also called a community spouse) from living in poverty. A Minimum Monthly Maintenance Needs Allowance (MMMNA) allows a Medicaid applicant spouse to transfer monthly income to their non-applicant spouse. There is also a Community Spouse Resource Allowance, which allows a greater portion of the couple’s assets to be allocated to the non-applicant spouse.

Convert to an Annuity
In states and situations where the retirement account counts as an asset, it is possible to convert the money into a Medicaid compliant annuity. In simple terms, the retirement savings plan is cashed out and then converted into a monthly stream of income. While this strategy turns a countable asset into a non-countable asset, the income stream will be counted towards Medicaid’s income limit. Therefore, an applicant must be careful when utilizing this strategy not to exceed the income limit or they must combine this strategy with allocation of income to a non-applicant spouse.

 Proceed with Caution: If you or a loved one has a retirement savings account and are planning to apply for Medicaid, it is imperative that one contact a Medicaid professional planner for advisement. Incorrectly utilizing planning techniques can result in Medicaid disqualification by violating Medicaid’s look back rule. This is a period in which Medicaid looks at all past transfers to ensure assets were not sold for less than fair market value or gifted. If one has violated this rule, a penalty period of Medicaid ineligibility will be established.

 

Can Medicaid Take an Applicant’s Spouse’s Retirement Plan?

Medicaid programs, for the most part, count all assets held by either partner of a married couple as jointly held assets. There are, however, exceptions and nuances. While some states count a non-applicant spouse’s IRA or 401(k) against the asset limit, approximately half of the states do not. (For exemption, payout status may be required). Even if a non-applicant spouse’s IRA is not exempt, if their spouse is applying for nursing home Medicaid or a HCBS Medicaid waiver, the non-applicant spouse is entitled to a greater amount of the couple’s assets. Couples in this situation should consult with a Medicaid planning expert to ensure a healthy spouse is left with enough income and resources on which to live.

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