Retirement Accounts (IRAs, 401(k)s & Pensions) and Their Impact of Medicaid Long Term Care Eligibility

Summary
To be eligible for Medicaid Long Term Care, you or your loved one have to meet two financial requirements – an asset limit and income limit. Retirement accounts like IRAs and 401(k)s can affect both of these requirements because they can be considered either an asset or an income depending on several factors. To make things more complicated, asset and income limits can vary by state, marital status and Medicaid Long Term Care program.

Understanding Medicaid's Financial Eligibility Limits and Rules

To understand how retirement accounts such as IRAs impact your Medicaid Long Term Care eligibility, you first need to understand Medicaid’s financial eligibility criteria and rules.

Asset and Income Limits

All Medicaid Long Term Care applicants have to meet an asset limit and income limit. These limits are relatively low, since Medicaid is meant for people with limited financial resources. The limits can change depending on the state where you live, if you’re married, if your spouse is also applying and which of the 3 types of Medicaid Long Term Care you’re applying for – Nursing Home Medicaid, Home and Community Based Services Waivers or Aged, Blind and Disabled (ABD) Medicaid.

In most states in 2025, the asset limit for all three types of Medicaid Long Term Care is $2,000 for an individual and either $3,000 or $4,000 combined for a couple with both spouses applying. For married couples with only one spouse applying for Nursing Home Medicaid or HCBS Waivers in 2025, the applicant’s asset limit is $2,000 and the asset limit for the non-applicant spouse is $157,920 due to the Community Spouse Resource Allowance (CSRA). The CSRA does not apply to ABD Medicaid, where the asset limit for married couples in most states in 2025 is $3,000 regardless of how many spouses are applying. However, there are many exceptions, like California, where there is no asset limit for all three types of Medicaid. Or Illinois, where the asset limit is $17,500 for all three types of Medicaid Long Term Care and for individuals and married couples.

As for the income limit, it is $2,901/month for an individual in most states in 2025 for Nursing Home Medicaid and HCBS Waiver applicants, and it’s between $967/month and $1,795/month for an individual for ABD Medicaid, depending on the state. For married couples with both spouses applying for either Nursing Home Medicaid and HCBS Waivers, the 2025 income limit in most states is $5,802/month combined, and for married couples with just one spouse applying for either of those two programs the income limit is $2,901/month in most states and the income of the non-applicant spouse is not counted. For married ABD Medicaid applicants, the income limit is between $1,450/month and $2,658/month combined, depending on the state. This applies to couples with one or both spouses applying.

Again, there are many variances to these income limits. For example, in North Carolina, the income limit for HCBS Waivers and ABD Medicaid from April 2024 to March 2025 is $1,255/month for an individual and $1,704/month for a couple, while the income limit for Nursing Home Medicaid is the Medicaid pay rate, which means whatever Medicaid has to pay for the nursing home care. It’s also important to note the Nursing Home Medicaid recipients are required to give most of their income to the state to help cover the cost of nursing home care.

Countable and exempt assets and income

Most of your assets (and your spouse’s assets, if you’re married) will be counted toward your asset limit – savings accounts, checking accounts, stocks, bonds, certificates of deposit, cash and any other assets that can be easily converted to cash. And most of your income (and your spouse’s income, if you’re married and both of your are applying for Medicaid Long Term Care) will be counted toward the income limit – Social Security benefits, pension payments, property income, alimony, wages, salary, stock dividends, etc.

However, there are some assets and incomes that are exempt, or not counted, toward Medicaid’s limits. Your home, for example, will be exempt from the asset limit in many cases, as will a primary vehicle and personal items like wedding and engagement rings. And even if you’re over the asset or income limit, you can still become Medicaid eligible by using certain strategies, which are discussed below.

How the Financial Limits and Rules Apply to Retirement Accounts

Now that you know about countable vs. exempt assets and the asset limit vs. income limit, you can understand in general terms how retirement accounts impact Medicaid financial eligibility:

• Retirement accounts will be counted in many cases, but there are times when they can be exempt, depending on the account’s payout status, your state of residence and, if you’re married, which spouse owns the account.
• Retirement accounts can be counted toward the asset limit or the income limit. Which one depends on the account’s payout status, your state of residence and, if you’re married, which spouse owns the account.

It should be noted that the Medicaid rules that apply to IRAs and 401(k)s also apply to 403(b)s, Keoghs and TSAs.

When are Retirement Accounts Counted as Assets and When as Income?

Many states count retirement accounts as assets regardless of their payout status. Monthly payouts do not count as income in these states. But retirement accounts are exempt from the asset limit in other states if they are in payout status. In these cases, the monthly payouts will count toward the income limit.

The countable or exempt status can also change for married couples with one spouse applying depending on who owns the retirement account, the applicant spouse or the non-applicant spouse. For example, in Pennsylvania the applicant’s retirement accounts are always considered countable assets, but the non-applicant’s retirement accounts are always exempt, regardless of payout status.

The table below shows you exactly when retirement accounts will be counted or exempt from the asset limit.

State-by-State Table: When are Retirement Accounts Countable and When are They Exempt?

As we just discussed, the payout status of your retirement account can make it exempt from the asset limit in some cases. Retirement accounts go into payout status as soon as the owner starts withdrawing funds from it. IRA owners who are age 72 or older must withdraw a Required Minimum Distribution (RMD) from their IRAs on a monthly basis.

The table below shows how each state treats retirement accounts owned by applicants and retirement accounts owned by spouses of applicants in terms of being counted or exempt from the state’s Medicaid asset limit.

(Used with permission from the American Council on Aging)

How to Become Eligible with a Retirement Account

Even if your countable retirement account leaves you over the asset or income limit, there are still ways you can become Medicaid eligible. Most of these strategies are complicated, and not using them correctly could lead to your Medicaid application being denied and a period of ineligibility as a further penalty, so we recommend consulting with a planning professional like a Certified Medicaid Planner or an Elder Law Attorney before attempting most of them on your own.

• If your retirement account puts you over your asset limit, but the account will be exempt if it is in payout status and the monthly payments won’t put you over the income limit, you can simply put the account in payout status and become Medicaid eligible. Again, it’s important to remember that the payments will be counted as income and this is only an option in a few states, like Florida and Georgia, that will exempt accounts in payout status.
• You can cash out your retirement account and “spend down” the proceeds until you are below the asset limit. This is a common Medicaid planning strategy, but there are strict rules on what you can spend the money on if you want to become Medicaid eligible. To learn more about Medicaid asset spend down, click here.
• You can also “spend down” extra income from monthly payouts on healthcare expenses via the Medically Needy Pathway, or deposit them into a Qualified Income Trust, depending on the state you live in, to get below the income limit.
• You could cash out your retirement account and purchase a Medicaid Compliant Annuity with the proceeds to help you get below the asset limit. Funds in a Medicaid Compliant Annuity will not be counted toward the asset limit, but the annuity’s monthly payments will count toward the income limit. To learn more about Medicaid Compliant Annuities, click here.
• If you’re married and your spouse is not applying for Medicaid Long Term Care, you could cash out your retirement account and give the proceeds to your spouse, as long as your spouse would have limited financial resources otherwise. This is known as the Community Spouse Resource Allowance, which we mentioned above. The limit on this allowance is $157,920 in most states in 2025. To learn more about the Community Spouse Resource Allowance, click here.
• If you’re married and your spouse is not applying for Medicaid Long Term Care, you can transfer the monthly payments from the retirement account to your spouse, as long as your spouse would have limited financial resources otherwise. This is known as the Monthly Maintenance Needs Allowance. The limit on this allowance ranges from $2,555 – $3,948/month as of July 1, 2024. To learn more about the Monthly Maintenance Needs Allowance, click here.