Will an IRA Affect Medicaid Eligibility?

Q. My husband, Chuck, and I are both retired and on Social Security.  Chuck also has a modest employee pension plan and an IRA. We live in Northern Virginia.

Although we are both in relatively good health now, we’re concerned about what will happen to his retirement funds if one of us needs nursing home care and needs to qualify for Medicaid in the future.

I heard that this past week, the Supreme Court held that inherited IRAs are not considered to be retirement funds. Does this mean that they are not exempt for the purposes of Medicaid eligibility?

A. For many Medicaid applicants, individual retirement accounts (IRAs) are among their biggest assets. Your question assumes that regular IRAs are exempt assets for Medicaid, but this in fact is not the case.  IRAs in Virginia, and in many other states, count as available assets with regard to Medicaid eligibility.

Virginia Medicaid Eligibility

In Virginia, for a nursing home resident to qualify for Medicaid, his or her resources cannot exceed $2,000.  Resources include anything that can be converted to cash, including (but not limited to) real property, bank accounts, cash value life insurance. IRAs, 401(k)s, and annuities with cash value also count, despite any penalties that may apply to an early withdrawal.

In some states IRAs and other retirement accounts are “non-countable” resources in Medicaid planning if they are in “pay-out” status, meaning that the owner has reached the age where Required Minimum Distributions are required to be taken, but this is not true in Virginia or most other states.

When it comes to inherited IRA’s, the recent Supreme Court decision that you are asking about held that funds in an inherited IRA are not “retirement funds” under federal law and are therefore not exempt in bankruptcy (Clark v. Rameker), unlike regular IRAs and other “retirement funds” which are exempt in bankruptcy. 

Virginia Medicaid Laws

However, bankruptcy laws and Medicaid laws have nothing to do with each other, and just because an asset is exempt in bankruptcy or exempt from lawsuits does not mean that the asset is exempt in connection with Medicaid.  On the contrary, as stated above, it is important to understand that even though IRA’s and other retirement accounts are exempt from bankruptcy and some other creditors, they are NOT exempt from Medicaid.

The general rule of thumb is this:  if you can cash in the asset, it is a countable resource for Medicaid eligibility. Therefore, IRAs and other retirement funds are countable assets for Medicaid because they can be withdrawn by the applicant at any time.

Virginia Medicaid Complexity

Medicaid laws are the most complex and confusing laws in existence, and impossible to understand without highly experienced legal assistance. Without proper planning and legal advice from an experienced elder law attorney, many people spend much more than they should on long-term care, and unnecessarily jeopardize their future care and well-being, as well as the security of their family. Please read the Medicaid Complexity page on our Website for more details.

Virginia Medicaid Planning

Nursing homes in Northern Virginia cost $10,000-$14,000 a month, which can be catastrophic for most families. If you are nearing the need for nursing home care or are you simply looking to plan ahead in the event nursing home care is needed in the future, the time to start planning is now.  Life Care Planning and Medicaid Asset Protection is the process of protecting your assets from having to be spent down in connection with entry into a nursing home, while also helping ensure that you or your loved one get the best possible care and maintain the highest possible quality of life, whether at home, in an assisted living facility, or in a nursing home. Learn more at The Fairfax and Fredericksburg Elder Law Firm of Evan H. Farr, P.C. website. Call 703-691-1888 in Fairfax or 540-479-1435 in Fredericksburg to make an appointment for an introductory consultation.

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