| ALERT
MEDICAID HAS CHANGED HOW THEY WILL TREAT YOUR
IRA AND OTHER RETIREMENT PLANS
What has not changed: You have to be poor to be on Medicaid. Poor means that you cannot have more than about $32,000. All retirement plans (IRAs, ROTH IRAs, 401Ks, 403Bs, etc.) are exempt from this (not counted as an asset), provided the retirement plan is in payout status. Payout status generally means that certain regular payments are being withdrawn from the fund…most people think of this as RMDs, but that has not been technically correct.
OLD LAW: The law was different among New York’s many counties, but Nassau and Suffolk counties followed the rule that the amount that had to be withdrawn from the retirement account was based on Medicaid’s life expectancy table, and they provided a chart. The chart showed different life expectancies for men and women at different ages. For example, an 82-year-old man has a life expectancy of 7.11 years, and a woman 8.34 years. Under this system, assuming a person has $1,000,000 in their IRA, in order for the IRA to be exempt from being counted as an asset, a man had to withdraw $1,000,000 divided by 7.11 or $140,647, and a woman had to withdraw $119,904. These withdrawals are very high (much higher than the IRS required minimum distributions, or RMDs), and together with a person’s social security and pension, that could be enough to pay the whole nursing home bill! Since all income has to go to the nursing home before Medicaid will pay anything, it is obvious that this person may never be eligible for Medicaid because all bills are covered by their income. Therefore, there would be no reason to do Medicaid planning, and no reason to set up an irrevocable trust. We send many clients away without doing an irrevocable trust for this reason.
NEW LAW: New York has decided to include all counties within one system and has abolished its life expectancy system in favor of the IRS uniform lifetime table. WE NOW ONLY USE THE IRS RMD TABLE! The same 82-year-old (now men and women can use the same table) with $1,000,000 in an IRA would have an RMD of $1,000,000 divided by 18.5 or $54,054. This drastically lower number means that your “income” may not cover the nursing home bill, and now your other assets are vulnerable to be used to pay the bill. Therefore, if your goal is to protect your assets, a Medicaid plan (which may include putting your assets into an irrevocable trust) may be necessary.
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