How to Protect an Individual Retirement Account / Arrangement (IRA) When Applying for Medicaid

Summary
Many seniors who need Medicaid Long Term Care also have IRAs, but those IRAs can make some of those seniors or their spouses financially ineligible for Medicaid. However, where they live, their marital status and the IRA’s payout status all make a difference. Plus, there are ways to be Medicaid eligible with an IRA.

 

The Importance of Medicaid’s Asset and Income Limits

To qualify for Medicaid, applicants need to meet two financial requirements – the asset limit and the income limit. Depending on your circumstances and location, IRAs can count against both limits, but they can also be exempt, or not count against the limits. That also applies to 401(k)s, 403(b)s, Keoghs and TSAs, as do the rest of Medicaid’s IRA rules.

These asset and income limits vary by the three types of Medicaid – Nursing Home Medicaid, Home and Community Based Service Waivers and Aged, Blind, and Disabled / Regular Medicaid. Nursing Home Medicaid provides long term care in approved nursing homes. Home and Community Based Service Waivers and Aged, Blind, and Disabled Medicaid offers long term care services and supports for Medicaid beneficiaries who live in their own or the home of a loved one, or in some cases assisted living residences, adult foster care and other residential settings.

Medicaid’s asset and income limits also vary by state. However, even though there are many possible variations, the asset and incomes limits are low. As of 2024, most states allow single applicants to have a maximum of $2,000 in assets and couples to have a combined $3,000 or $4,000. But these limits do vary by state. In New York, for example, individuals can have up to $31,175 in assets and couples up to a combined $42,312. Illinoi allows single and married applicants to have $17,500. And there is no asset limit in California.

As for income, the individual limit in 2024 is $2,829/month in most cases, but again that depends on the type of Medicaid, state of residence and marital status. But all Nursing Home Medicaid beneficiaries are required to give most of that income to the state to help offset the cost of care, and some HCBS Waiver beneficiaries are required to do the same to offset assisted living expenses.

 

What is Counted as an Asset?

For Medicaid purposes, assets that count against the limit include bank accounts, stocks, bonds, certificates of deposit, cash and any other assets that can be easily converted to cash. An applicant’s home can be counted against the asset limit, but there are also many ways for the home to be exempt, most notably if the applicant or their spouse lives there.

An IRA can also count toward Medicaid’s asset limit depending on its payout status and type, and the applicant’s state of residence and marital status. However, even when an applicant has an IRA that is a countable asset, there are strategies (discussed below) to help them become Medicaid eligible.

 

How Different States Consider IRAs for Medicaid Eligibility Purposes

As mentioned above, the payout status of IRAs/401ks makes a difference when it comes to how they’re treated for Medicaid purposes. An IRA goes 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 IRAs/401ks owned by applicants and IRAs/401ks owned by spouses of applicants in terms of being counted or exempt from the state’s Medicaid asset limit.
Applicant’s IRA/401k in payout status Applicant’s IRA/401k NOT in payout status Spouse of Applicant’s IRA/401k in payout status Spouse of Applicant’s IRA/401k NOT in payout status
Alabama Counted Counted Counted Counted
Alaska Counted Counted Exempt Exempt
Arizona Counted Counted Counted Counted
Arkansas Counted Counted Counted Counted
California Exempt Counted Exempt Exempt
Colorado Counted Counted Counted Counted
Connecticut Counted Counted Counted Counted
Delaware Counted Counted Exempt Exempt
District of Columbia Exempt Exempt Exempt Exempt
Florida Exempt Counted Exempt Counted
Georgia Exempt Counted Exempt Exempt
Hawai’i Counted Counted Counted Counted
Idaho Exempt Counted Exempt Exempt
Illinois Counted Counted Counted Counted
Indiana Counted Counted Exempt Exempt
Iowa Counted Counted Counted Counted
Kansas Exempt Exempt Exempt Exempt
Louisiana Counted Counted Counted Counted
Maine Counted Counted Counted Counted
Maryland Counted Counted Counted Counted
Massachusetts Counted Counted Counted Counted
Michigan Counted Counted Counted Counted
Minnesota Counted Counted Counted Counted
Mississippi Exempt Counted Exempt Counted
Missouri Counted Counted Counted Counted
Montana Counted Counted Counted Counted
Nebraska Counted Counted Counted Counted
Nevada Counted Counted Counted Counted
New Hampshire Counted Counted Counted Counted
New Jersey Counted Counted Counted Counted
New Mexico Counted Counted Counted Counted
New York Exempt Counted Exempt Counted
North Carolina Counted Counted Counted Counted
North Dakota Exempt Exempt Exempt Exempt
Ohio Exempt Counted Exempt Counted
Oklahoma Counted Counted Counted Counted
Oregon Counted Counted Counted Counted
Pennsylvania Counted Counted Exempt Exempt
Rhode Island Exempt Counted Exempt Counted
South Carolina Exempt Counted Exempt Counted
Tennessee Counted Counted Counted Counted
Texas Exempt Counted Exempt Counted
Utah Counted Counted Counted Counted
Vermont Exempt Counted Exempt Counted
Virginia Counted Counted Counted Counted
Washington Counted Counted Counted Counted
West Virginia Counted Counted Exempt Exempt
Wisconsin Counted Counted Exempt Exempt
Wyoming Counted Counted Exempt Exempt

(Used with permission from the American Council on Aging)

 IMPORTANT:  The RMD monthly total, or however much the Medicaid applicant is withdrawing from their IRA every month, is counted against the Medicaid income limit along with all other income.

 

Ways to Become Eligibile with an IRA

Even if you or your spouse has an IRA that can be counted and would put you over Medicaid’s asset or income limit, there are still ways to become Medicaid eligible.

Spend Down

Countable IRAs can be liquidated, or cashed out, and spent on items that are exempt from the asset limit. This is known as “spending down.” Exempt items include home modifications that promote independent living, like wheelchair ramps, stair lifts and walk-in tubs. A new, modified vehicle can also be exempt, as are pre-paid funeral plans and life insurance policies (up to certain limits). Cashed out IRAs may also be spent on long term care (such as in-home personal care, assisted living or nursing home care) to help applicants get below Medicaid’s asset limit.

Any item purchased with funds from a cashed out IRA that is not Medicaid exempt will count against the asset limit.

Applicants should also note they are not allowed to give away assets, including funds from a cashed out IRA, in order to get under the asset limit. This violates Medicaid’s “Look-Back Period,” which requires state officials to “look back” into an applicant’s financial history to make sure they have not given away assets or sold them at less than fair market value. Most states look back five years, although there are exceptions in California and New York. The Look-Back Period only applies to applicants for Nursing Home Medicaid and Home and Community Based Service Waivers, it does not apply to ABD Medicaid. However, ABD applicants should be wary about giving away their assets because they may eventually need Nursing Home Medicaid or an HCBS Waiver.

 

Allocation to Spouse

If just one spouse in a married couple is applying for Medicaid, there are spousal impoverishment rules in place to make sure low-income, non-applicant spouses do not live in poverty. The Monthly Maintenance Needs Allowance allows a Medicaid applicant to give a portion of their monthly income to their non-applicant spouse. And the Community Spouse Resource Allowance allows the non-applicant spouse to keep a larger percentage of the couple’s assets. So, a non-applicant spouse could claim all of the monthly payouts from an IRA as part of their Minimum Monthly Needs Allowance, or they could claim the IRA before payout status as their own asset and part of their Community Spouse Resource Allowance.

 

Annuities

An annuity is a financial product that converts a lump sum of cash into monthly payments. Some annuities are not counted as Medicaid assets in some states. So, cashing out an IRA that is counted against the asset limit and buying an annuity that is not counted could help an applicant become Medicaid eligible. Once again it’s important to remember that even though the annuity won’t count against the asset limit, the monthly payments from the annuity will count against Medicaid’s income limit. It’s also important to note that not all annuities are Medicaid approved.

 

Types of IRAs and Other Retirement Savings Plans

Roth IRAs never require their owners to withdraw funds, even when the owner turns 72 and would have to take a Required Minimum Distribution (RMD) from other IRAs. This means that unless the state automatically exempts IRAs regardless of payout status, Roth IRAs will most likely be considered an asset. IRAs are automatically exempt for non-applicant spouses in Alaska, Delaware, Indiana, Kansas, Kentucky, North Dakota, Pennsylvania, West Virginia, Wisconsin, Wyoming and Washington, D.C., and they are automatically exempt for applicants in Kentucky, North Dakota and Washington, D.C.

IRAs that can be easily cashed out may be counted under some circumstances where other, more traditional IRAs would be exempt.

As noted above, these guidelines on how Medicaid treats IRAs can also be applied to 401(k)s, 403(b)s, Keoghs and TSAs.