The Listen to Lawrence Letter: How are annuities treated when applying for Medicaid?
July 2, 2021
Dear Clients and Friends,
I asked if we could keep the dialogue going and this next question does exactly that! Another specific question and answer to further explain how Medicaid determines eligibility:
How are ANNUITIES treated when applying for MEDICAID? My mother has approximately $55,000 in an annuity. Does this count towards the $15,900 maximum allowance, or is it treated like an IRA with its own distribution schedule? I would appreciate your comments.
The quick answer is that non-IRA annuities are treated like regular bank or brokerage accounts; that is, they are NOT exempt. They will be counted as an asset and they count toward the $15,900 maximum allowance. Retirement plans, like IRAs, 401Ks, 403Bs, and the like do not count toward the $15,900 asset limit but do count toward the income limits (a certain amount must be withdrawn each year from these accounts, and this may be larger than the RMD (required minimum distributions set out by the IRS). Keep in mind that an IRA can hold an annuity, and can be exempt as an asset.
To protect a non-IRA annuity from Medicaid, it may be appropriate to transfer the annuity to an Irrevocable Medicaid Trust. Often annuities will have deferred income which may become taxable on the transfer, but the use of a trust will continue the deferral of the tax.
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Until next time,
peace, health and happiness,
Lawrence Eric Davidow