Listen to Lawrence…Are Roth IRAs treated the same by Medicaid as traditional IRAs?

DAVIDOWLAW Uncategorized

CLIENT’S QUESTION:
Since you are talking about Roth IRAs, are they treated the same by Medicaid as traditional IRA’s? In other words, if I go on Medicaid because I end up in a nursing home they will only be able to take my RMD distributions from the traditional IRAs. But what about Roths? They don’t have RMDs. Is Medicaid allowed to force you to completely liquidate your Roth accounts in order to get Medicaid?
MY RESPONSE:
To be eligible for Medicaid, you cannot have more than $15,750 of assets. However, as you correctly pointed out, the amount of money that you hold in your IRAs, 401Ks, 403Bs, and other retirement plans are essentially exempt from Medicaid, at least in New York. You could technically have $1 million in an IRA and it would NOT be counted as an ASSET for eligibility purposes. Notwithstanding this, Medicaid requires that to qualify for this exemption, you must put your retirement accounts in “pay status,” which means that you must withdraw your required minimum distributions (RMDs) from the account. These RMDs are considered your INCOME along with your monthly Social Security and pension checks. Essentially, the amount you must withdraw will be divided by twelve for proper Medicaid monthly budgeting. Furthermore, at least in Suffolk and Nassau counties, the RMD is not based upon the tax law but rather based upon the Medicaid law, which requires a larger RMD.
Having said all this, is a Roth IRA treated the same way or is the fact that no RMD is required by the IRS result in exempting the account from Medicaid? Unfortunately, the answer is that ROTH IRAs are treated the same as all other retirement plans, with the Medicaid enhanced RMD required to be removed from the Roth each month, albeit, without tax. Sorry for the bad news!
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