IRAs and 401Ks – What if your state’s Medicaid doesn’t count them?

This is the sixth post about IRAs and 401Ks.  My prior five posts have discussed how, when, and why to withdraw money from your IRA (or 401K, or 403B, or MyRA, when it arrives, or any other tax-deferred account.)  See “IRAs and 401Ks are not for tax avoidance. They are for tax timing” from March 20, 2014, “IRAs and 401Ks – Withdrawing Money Too Slowly” from March 27, 2014, IRAs and 401Ks – Withdrawing Money Too Quickly from April 4, 2014, IRA and 401k Withdrawal Strategy – Don’t be Stupid about It from April 11, 2014, and IRAs and 401Ks and the Risk of Long Term Care from April 18, 2014.  (As I’ve done before, I’ll call them all IRAs, but the discussion will apply to 401Ks, 403Bs, and even MyRAs (assuming that they act like IRAs when the rules eventually get written,) and other tax deferred accounts, except perhaps Roth IRAs.)  This week, I want to discuss what to do if you live in a state, like California or Florida, that doesn’t count your IRA as an “asset” for Medicaid purposes.

If you need long term care in a state that doesn’t consider your IRA during the Medicaid application process, you shouldn’t just assume that all is well.  There may be conditions of state law or rules that, over the long run, will use up or take the IRA.  There also may be advantages in dealing with the IRA up front.

Caveat:  I have made no attempt to learn the various states’ laws other than what I’ve picked up from chance discussions with other elder and special needs law attorneys.  I don’t make enough money in journalism to undertake a comprehensive investigation.  (Actually, I make no money in journalism.)  I practice law only in Ohio, helping seniors who need long term care and people with special needs according to Ohio law and federal law.

Your state might ignore your IRA as an asset only if it is paying out as income.  If so, it might be more advantageous to call the IRA an asset and use the tax payment as part of the spend down to reach the asset level necessary for Medicaid eligibility.

Your state might ignore your spouse’s IRA while your spouse is still working.  If, however, your spouse stops working, the IRA could suddenly become an asset, and your Medicaid coverage could stop until the IRA money is spent.  A plan for when your spouse stops working is in order.

Your state might ignore your IRA while you’re alive but go after the money in the IRA as part of the “estate recovery” proess after you’ve passed away.  (When seniors talk about “losing the house to Medicaid,” the estate recovery process is probably what they mean, even if they don’t fully understand it.)  The estate recovery process can reach more assets than just the house and might include the IRA.

Regardless of your state’s Medicaid rules, you should consider whether you could possibly qualify for VA Pension.  (Visit the Veterans tab on my website to learn more.)  Pension is not available for veterans or their surviving spouses to too many assets.  Even if Medicaid wouldn’t count your IRA, you might need to think ahead about possibly qualifying for VA Pension.

Regardless of your state’s laws and possible VA benefits, it might be more financially advantageous to make the IRA withdrawal at the time you need long term care rather than waiting to pass the IRA to your beneficiaries.  (I suspect this is true more for a married couple where one spouse needs long term care than it is for a single people who needs care.)

So, if your state doesn’t count your IRA as an “asset” during the Medicaid eligibility decision, you should CONSULT AN ELDER LAW ATTORNEY.  There are too many variables to consider at a time when you and your family have to deal with long term care decisions.  It’s too easy to make a decision that seems right in the short run but could have negative consequences over a long period of time.

For more information visit www.ProtectingSeniors.com

Jim Koewler’s mission is
Protecting a Senior’s Life Savings™
from the costs of long term care

For help with long term care costs or special needs planning,
call Jim or contact him through his website.

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