Does it make sense for Medicaid planning purposes to transfer tax-deferred assets (IRA, 401K) to an irrevocable trust?
The answer is NO! Don’t even think about it. And this answer is true for any type of trust, revocable or irrevocable. The transfer of a retirement plan (IRA, 401K, 403B) will destroy the plan and trigger the income tax on the full account. OUCH!
However, this is not a problem as such retirement plans are exempt as an ASSET from the Medicaid rules. On the other hand, an amount must be withdrawn from the account each year based on the life expectancy tables (not IRS tables) as provided by Medicaid. This withdrawal is considered INCOME and is subject to Medicaid’s income limitations.
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