LISTEN TO LAWRENCE
QUESTION:
I have a question. I know that if you go to a nursing home on Medicaid that they cannot demand that you take more than your RMD from your IRA or pensions. I assume that would also be true if you went in on self-pay and then ran out of all funds except your IRAs and pensions and qualified for Medicaid. But what about your Roth IRAs? They have no RMD requirement. Would you be required to wipe them out before qualifying for Medicaid? I have no problem with self-paying for a year maybe before running out of funds but want to be sure my daughter could still inherit whatever is left in my Traditional and Roth IRAs if I continued in a nursing home past the point where my non-retirement funds are depleted.
Thank you.
MY RESPONSE:
I wish I could say that the above is correct, but I cannot. I will say that what this questioner assumed is a commonly held belief in spite of its incorrectness. Here is the real scoop. There are two tests to be eligible for Medicaid. The first is you have to be poor in assets (no more than $15,900 in 2021) and the second is you have to be poor in income (no more than $50/month in a nursing home and $904 with home care in 2021).
Asset Test: The good news is that all retirement plans (IRAs, Roth IRAS, 401Ks, 403Bs, and the like) are exempt from Medicaid. That is, they are not considered an asset. This is only true, though, if the plan is in “pay status,” which essentially means that you are taking out the required minimum distributions. This would also be true if the Medicaid applicant was younger than 72.
The Income Test: The bad news is that the RMDs are considered income and count toward the above income exemptions. I keep saying RMDs above but that term is unfortunately misleading. The retirement plan must be in “pay status” even if no RMD is required and even if the amount that must be paid is greater than what would be considered the RMD as provided by the IRS. As such, to be an exempt asset, ROTH IRAs must be in “pay status” even though no RMD is required. They are treated the same as a regular IRA!
To make matters worse, at least in Nassau and Suffolk counties, the amount that must be paid out (to be in pay status) is dictated by Medicaid and not the IRS, and that amount is always greater. Medicaid uses the following life expectancy table which is the most current version and may be revised in the future.
