When you’re planning for Medicaid coverage of nursing home care, it’s important to take any IRAs you own into account.
Medicaid applicants can retain only a small amount of assets ($2,000 in most states) in order to be eligible for benefits. Certain assets may be exempt from this rule. Whether your IRA is exempt often depends on whether it is in “payout status.”
You can put your IRA into payout status starting at age 59½ if you elect to take regular, periodic distributions based on life expectancy tables. At age 70½, you’re required to put your IRA into payout status.
The rules vary from state to state, but often, if an IRA is in payout status, it won’t count as an asset for Medicaid purposes. The payments you receive from the IRA will count as income, though. Medicaid recipients are allowed to keep a tiny amount of income for personal use, and the rest will go to the nursing home.
If the IRA isn’t in payout status, it will typically count as an asset – which means you’d have to cash it out and spend down the funds, or possibly transfer them to someone else (although this can be tricky).
Roth IRAs have their own rules. In many states, Roth IRAs always count as an asset because there are no required minimum distributions.
The rules regarding IRAs and Medicaid are complicated, which is yet another reason why it’s good to consult an attorney whenever you’re planning for nursing home care.