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

Summary
Whether an applicant is financially eligible for Medicaid Long Term care depends on income and assets, but how do individual retirement accounts (IRAs), pensions, and 401(k)s factor in? The first thing to know is that eligibility for all Medicaid programs is complicated and will depend on the specific state in which one lives. Retirement accounts usually count towards the Medicaid income or asset limit when one applies for Nursing Home Medicaid, Home and Community Based Services waivers, or Aged, Blind and Disabled (ABD) Medicaid, but there is much nuance even beyond one’s state of residence—marital status, level of need, type of retirement account and its payout status, and many other factors come into play.

Introduction

Very broadly, we can say that IRAs, pensions and 401(k)s usually do get considered when determining eligibility for Medicaid benefits, and this applies to all three types of Medicaid Long Term Care programs: Nursing Home Medicaid, Home and Community Based Services waivers, and Aged, Blind and Disabled Medicaid. If someone with a retirement account applies for Medicaid, the value of those retirement funds are a consideration for whether benefits are approved.

Before we get specific, however, here are some Medicaid Long Term Care eligibility basics that an applicant will want to know:

– To receive long term care benefits through Medicaid, an applicant must have assets below their state’s asset limit (usually $2,000, though the figure can vary and not every asset is counted).
– An applicant must also have income below the income limit, which is usually $2,523 per month but this can vary by state, marital status and type of Medicaid.
– Money from or in a retirement account, be that a pension, 401(k) or IRA may be considered as income or counted as an asset, but not both.
– Every state may make its own Medicaid rules, which is why there are different rules in different states.
– In every state, someone who exceeds the income or asset limits can still become Medicaid-eligible. Medicaid offers “alternative pathways to eligibility”.

 

Does Retirement Money Count Towards Medicaid’s Income Limit or Asset Limit?

Firstly, what do we mean by income and assets? To be financially eligible for Medicaid, an applicant must make monthly income below a certain amount—$2,523 in 2022 in most states, though there is variance—and must have financial assets, including money in the bank, below a specific amount—$2,000 for a single individual in most states. An applicant whose income and/or assets are above those limits is considered ineligible.

When Retirement Counts as an Asset: If retirement savings are being held in an account as one lump sum, then they are probably considered an asset for Medicaid purposes.

When Retirement Counts as Income: When retirement savings are paying out to the recipient on a monthly basis then they are probably income for Medicaid purposes.

That said, there is much nuance. Marital status is a major factor, and level of care need and one’s living situation may also be important issues when applying for Medicaid Long Term Care. Also, Medicaid planning techniques can enable someone who seems at first to be ineligible to actually gain eligibility by taking certain specific steps with their finances.

 Finding Your State’s Rules: Each state makes its own Medicaid rules, so someone who is eligible for Nursing Home Medicaid or another benefits program may not be eligible in a different state. To see program- and state-specific eligibility criteria, use our Medicaid Long Term Care Eligibility Requirements Finder tool.

 

How Pensions Differ from IRAs and 401(k)s

Whereas IRAs and 401(k)s are more commonly considered as assets (unless, in many states, they are paying out as income monthly), a pension is usually considered as income. Therefore, the amount one receives from their pension each month is counted toward the income limit in one’s state (usually $2,523 in 2022). If a pension was taken as a lump sum amount or if the beneficiary has the option to take the pension as a lump sum, it would likely be considered an asset.

 

Retirement Plans & the 3 Types of Medicaid

Medicaid Long Term Care programs are specifically for low-income adults who cannot live independently because of old age or chronic illness. Two of these programs—Nursing Home Medicaid and Home and Community Based Services waivers—assess applicants for physical need, meaning an applicant is evaluated to make sure that the benefits are necessary in order to live in comfort and safety. Often, a nursing facility level of care need is required. The third type of Long Term Care—Aged, Blind and Disabled (ABD) Medicaid, also called “regular Medicaid”—does not have a physical needs requirement.

All long term care programs, however, do have financial requirements in order for applicants to demonstrate they are low income. This is where retirement funds like IRAs, 401(k)s, and pensions come in.

 

Impact on Nursing Home Medicaid Eligibility

Nursing Home Medicaid, also called Institutional Medicaid, covers 100% of the costs of living in a nursing home, and in order to be eligible one’s assets and monthly income must fall below a certain amount. In 2022, the financial requirements are usually the following:
– Income below $2,523 per month
– Assets below $2,000 for a single applicant, $3,000 for a married applicant

Remember that the numbers might be different depending on one’s state of residence. There is also a functional requirement, meaning one must physically require a nursing-home level of care.

IRAs, pensions, and 401(k) retirement plans usually do get considered when applying for Nursing Home Medicaid. In some states, including California, New York and Florida, they are not considered assets if they are paying out monthly, meaning a certain amount is withdrawn monthly to pay one’s expenses.

If the amount drawn from one’s retirement each month combined with their other sources of income is less than $2,523 (or the income limit in one’s specific state) then an applicant would still be considered eligible for Nursing Home Medicaid. If their combined income is above the limit, it may still be possible to be eligible for Nursing Home Medicaid by taking alternative pathways.

For Nursing Home Medicaid, a recipient turns over all income, except a small personal needs allowance, to the nursing home. That includes retirement, though remember that specific state rules can vary.

 

Impact on HCBS Waivers Eligibility

Medicaid HCBS waivers are for Medicaid recipients who need a nursing home level of care (or close to it) but may remain in their own homes or assisted living communities with some of the benefits provided through Medicaid. The financial requirements for HCBS waivers are often the same as for Nursing Home Medicaid described above (recall that these numbers vary by state):
– Income below $2,523 per month
– Assets below $2,000 (single applicant) or $3,000 (married applicant)

When one receives these Medicaid benefits at home, rather than in a nursing home, income under the limit may be kept to pay for personal expenses like housing, food and utilities. If one’s retirement account income and their other income sources combined are less than $2,523, then they are likely eligible financially for a HCBS Medicaid waiver.

If one’s retirement puts them above the limit, it is still possible to receive Medicaid waivers with the use of planning techniques like allocation to a spouse or spending down on exempt and non-countable assets like pre-paid funerals, medical equipment, or life insurance valued below $1,500.

 

Impact on Aged, Blind and Disabled (ABD) Medicaid Eligibility

Aged, Blind and Disabled Medicaid is also called ABD or regular Medicaid, and its benefits in many states include long term care services for older or frail adults who need help in their own homes or assisted living communities. ABD goes by different names in different states, and often does not provide as many comprehensive care services as the waivers described above. Unlike waivers, however, ABD Medicaid is considered an entitlement, meaning that those who qualify must receive benefits and cannot be placed on a waitlist.

Financial eligibility is often different for ABD Medicaid. Again, the limits vary by state. However, a rule of thumb for most states is as follows:
– Income equal to the federal poverty level of $841 per month in 2022
– Assets below $2,000 for a single applicant or $3,000 for a married applicant

Someone whose income from their retirement accounts and other sources such as Social Security would need to draw less than the limits above in order to be eligible. Though if an applicant is above those limits it may still be possible to use planning services to become eligible.

 

Required Minimum Distribution (RMD) and Medicaid LTC Eligibility

Required Minimum Distribution (RMD) rules say that if someone has a retirement plan, then after the age of 72 a certain amount must be withdrawn from that plan annually. The RMD is different for individuals and depends on factors like life expectancy. One can calculate their RMD at this link.

One’s RMD may affect Medicaid eligibility, if the amount withdrawn is above the income limit in a state that considers retirement payouts as income. This is something to consider if one has retirement savings and is applying for Medicaid Long Term Care programs.

 

Roth IRAs

Roth IRAs are generally considered assets, rather than income, as rules about how they are paid out are different than for other types of retirement plans. Again, the rules around Roth IRAs and how they affect Medicaid eligibility will differ depending on the state.

If one “cashes out” a portion of their retirement plan meaning the money saved for retirement is withdrawn as a single lump sum rather than as a certain amount each month (which Roths allow), then it would be considered an asset, and would need to fall under the state’s asset limit.

 

State-Specific Rules for Retirements Accounts and Medicaid

 

Applicant’s Retirement Account

In the following states, IRAs and 401(k)s do not get considered an asset, meaning they are exempt, and their value does not count toward the financial limit. In all of the below except Washington, D.C., Kentucky, and North Dakota, the retirement accounts must be in payout status. Income from the accounts will be counted as income.

– California
– Washington, D.C.
– Florida
– Georgia
– Idaho
– Kentucky
– Mississippi
– New York
– North Dakota
– Ohio (though exemption rules vary by county)
– Rhode Island
– South Carolina
– Vermont

In all other states, the value of one’s IRA or 401(k) is considered toward the asset limit when determining eligibility for Nursing Home Medicaid, HCBS waivers, and Aged, Blind and Disabled Medicaid.

 

Spouse’s Retirement Account

In many states, a married applicant’s spouse’s IRA and/or 401(k) is also considered as part of determining Medicaid eligibility for the applicant even if their spouse is not applying for Medicaid as well. States that consider a spouse’s retirement account as income or an asset, depending on payout status, are: Alabama, Arizona, Arkansas, Colorado, Connecticut, Hawaii, Illinois, Iowa, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Virginia, and Washington.