Co-authored by Joanna C. Feldman
Under the usual fact pattern, a retirement account will not render someone ineligible for Medicaid. There are initially two major issues when considering whether someone is eligible for Medicaid: resources and income. Retirement accounts can fall in both categories.
For resources purposes, in New York, retirement accounts, such as IRAs, 401(k)s, and 403(b)s, are exempt for eligibility purposes. The caveat is that the applicant must be taking their required minimum distribution (RMD) on a monthly basis, no more and no less. If one is over 70 ½, the IRS provides that one must begin taking their RMD. Often, people will take their RMD annually as a lump sum. When contemplating Medicaid, it is important that the distribution frequency be changed to a monthly basis (on a pro-rata basis).
For income purposes, the RMD is considered the applicant’s income. A person receiving Medicaid benefits for care at home is permitted to retain a certain amount of net income per month, which includes the monthly share of the RMD. Any surplus monthly income will either need to be spent on their medical care or, for example, deposited into a pooled income trust. Money deposited into the pooled trust may be used for other monthly expenses. For a person receiving Medicaid benefits for nursing home care, the RMD will be factored in to the net monthly income the person will need to pay to the nursing home each month as a contribution toward their care.
We were told recently that someone was advised to change the ownership of their retirement account to achieve Medicaid eligibility. Unless there are extraordinary circumstances, this is generally unsound advice. Managing the financial and healthcare needs of your loved ones is difficult, but speaking with an elder law attorney can help shed light on these complicated issues and ensure you receive the correct advice.