11. Evaluate Your 401k or IRA Carefully when Planning for Medicaid

This is the 2012 version. Click here for updated 2016 version of this strategy.
Evaluate your 401k or IRA carefully. Medicaid will count your IRA or 401k as an available source of funds to pay for your care, unless it is in payout status. "Payout status" means that you are taking at least the required distribution out of your plan on a monthly basis.

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If it's not in payout status, it may be beneficial to take the cash out and pay the income tax on it, and then transfer it to a trust. This avoids your retirement account being counted as a resource that you will have to "spend down" under Medicaid eligibility requirements. Instead, your money can be used for your benefit during your lifetime, and whatever is left can be passed on to your beneficiaries through the trust.

If the account is in payout status, your retirement assets are not counted as resources, but the monthly payments that you receive are considered income. If you are receiving Medicaid home care benefits, any excess income can be protected by a Pooled Income Trust (discussed in Strategy No. 9: Use special trusts to guard cash, income, investments and other liquid assets). However, if you’re getting Medicaid nursing home benefits, the nursing facility is entitled to all of your monthly income except $50.

If you are receiving Medicaid benefits in a nursing home and your life expectancy is not very long, it may be to your children's financial advantage to leave the retirement plan in payout status and allow the nursing home to collect the income from your IRA or other plan while you are still alive. Upon your death, your kids, as your beneficiaries, can withdraw the balance in a lump sum or over time.

As you can see, finding the best solution for retirement assets demands careful analysis.



25 Strategies to Prevent Financial Ruin from Long-Term Health Care Costs

  1. 1. You can qualify for Medicaid (even if you don’t think so)
  2. 2. The “Wait and See” Approach can Result in Ruinous Health Care Expenses.
  3. 3. Plan for Home Care and Nursing Home Facility Care while You Still Can.
  4. 4. What’s the difference between Medicare and Medicaid?
  5. 5. It’s NOT too Late for Effective Medicaid Planning (even if you think it is)
  6. 6. Why Hire an Elder Law Attorney?
  7. 7. Don’t Prepare Your Own Medicaid Application
  8. 8. Trusts Can Protect Your Home and Your Money!
  9. 9. Special Trusts for Specific Purposes
  10. 10. Protecting Co-op Apartments Require Special Handling
  11. 11. Evaluate Your 401k or IRA Carefully when Planning for Medicaid
  12. 12. Why Take the Lump Sum Option on Your Pension or Retirement Account?
  13. 13. Choose Your Trustee Wisely
  14. 14. Private Annuities can Help Protect Your Assets
  15. 15. Caregiver Agreements Help Achieve Medicaid Eligibility
  16. 16. Keep Your Medicare Insurance
  17. 17. The Durable Power of Attorney
  18. 18. Elder Law and Estate Planning
  19. 19. The Health Care Proxy vs. the Living Will
  20. 20. How to Choose an Elder Law Firm
  21. 21. Streamline Your Financial Affairs and Record Keeping
  22. 22. New York State is More Generous than Other States
  23. 23. Your Attorney can Help Find the Best Care for You
  24. 24. Long-Term Care Insurance Won’t Necessarily Solve the Problem
  25. 25. Compassionate Elder Law Planning Focuses on Your Future Quality-of-Life!
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