Dear Atty. Tully,
My sister-in-law has a considerable amount in her IRA. Her husband is in a nursing home. Her main concern is that the state will take away her funds from the IRA if her husband applies for Medicaid. The IRA is only in her name. Can the state attach her money in the IRA?
Answer:
Without proper planning the state could make your sister- in law spend down her IRA. They won’t “attach” the IRA but will count the asset. (Please note in many cases all of the assets can be protected)
The State (Medicaid) simply doesn’t pay for nursing home care until the resident qualifies for Medicaid which can involve spending down assets. That said, your sister needs to consult with a qualified elder law attorney. States differ in their treatment of IRAs and, even if the money does have to be spent down, there are many strategies for protecting the assets of spouses of nursing home residents. In many cases the IRA can be protected with no spend down.
For many Medicaid applicants, individual retirement accounts (IRAs) are one of their biggest assets. If you do not plan properly, IRAs can count as an available asset and negatively affect Medicaid eligibility.
Be extremely careful that in attempting to protect your IRA that it is not treated as a disposal of assets for less than fair market value (a transfer that will create a possible prolonged period of Medicaid ineligibility).
Medicaid applicants can have only a small amount of assets to be eligible to receive benefits ($1,600 in Connecticut). Certain assets – i.e., a house, car, and burial plot – are usually exempt from eligibility determinations. Whether your IRA counts as an exempt asset depends on whether it is positioned properly.
How Medicaid Treats 401(k)s and Roth IRAs
The rules for a 401(k) are similar to an IRA. It depends whose name the 401(k) is in and if it is in payout status or not in payout status, Medicaid may count any funds that are available to withdraw as assets. (This is the case even if you have to pay a tax penalty.)
Note that the rules for a Roth IRA, however, may be different. Roth IRAs have no required minimum distributions and so can’t be in payout status. Therefore, the state Medicaid agency may count your Roth IRA as an asset. If you have a Roth IRA, it may not be exempt at all.
Connect With an Expert
The rules regarding IRAs, 401(k)s, Roth IRAs, and Medicaid are extremely complicated and vary from state to state. Be sure to speak to a qualified attorney about your IRA to determine the best course of action for you.
