Assisted living administrators are in a difficult position when it comes to advising residents with IRAs about when they should begin planning for Medicaid long term care. Maximizing private pay, maintaining occupancy and doing right by the family are sometime competing objectives. Knowing if a resident?s (and / or their spouse?s) IRA / 401(k) will cause them to be Medicaid-ineligible can be tricky. The state of residence, their marital status, the type of retirement savings plan, if the Required Minimum Distribution (RMD) is being withdrawn, the amount of the RMD, and Medicaid?s financial limitations, can all impact whether it is exempt or non-exempt. The rules regarding the treatment of IRA?s can vary widely based on the state, and therefore, an awareness of these rules is crucial when advising your residents.
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IRA Exemptions by State
We have tried to keep this simple, but be warned, this article is about to get technical.
When determining if your assisted living resident and / or their non-applicant spouse?s IRA is exempt or non-exempt, the first thing that should be considered is their state of residence. For instance, if your client is a Kentucky resident, their IRA is exempt, if they are a Florida resident, it is exempt only if they are taking the Required Minimum Distribution (RMD), and if they are an Arizona resident, it is non-exempt.
In Kentucky, North Dakota, and the District of Columbia, your resident?s and their non-applicant spouse?s IRA is an exempt asset.
In 29 states, your resident?s and their non-applicant spouse?s IRA is a non-exempt asset. These states are Alabama, Arizona, Arkansas, Colorado, Connecticut, Hawaii, Illinois, Iowa, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, Oklahoma, Oregon, South Dakota, Tennessee, Utah, Virginia, and Washington. Note that there is an exemption in Illinois; tax preferred retirement accounts are exempt. Furthermore, there are 8 states that will count retirement savings account, but will not count a non-applicant spouse?s IRA. These states are Alaska, Delaware, Indiana, Kansas, Pennsylvania, West Virginia, Wisconsin, and Wyoming.
Exempt if RMD is Taken States
In 11 states, your resident?s IRA is an exempt asset if they are taking the RMD, and in 8 states, their non-applicant spouse?s IRA is exempt if they are taking it. A RMD, however, would count as income, and based on the amount of the RMD and your resident?s other monthly income, it could push them over Medicaid?s income limit, causing them to be Medicaid-ineligible. The states that require the applicant to take the RMD are California, Florida, Georgia, Idaho, Mississippi, New York, Ohio, Rhode Island, South Carolina, Texas, and Vermont. In all of these states but California, Georgia, and Idaho, the non-applicant spouse must also be taking the RMD in order for their IRA to be exempt. In the 3 states listed as an exception, the non-applicant spouse?s IRA is automatically exempt.
RMDs are required by the IRS for traditional IRAs, Simplified Employee Pension (SEP) IRAs, SARSEPs, SIMPLE IRAs, and employer sponsored retirement plans, such as 401(k)s, 403(b)s, 457(b)s, and profit-sharing plans. It is the minimum amount that one is required to withdraw from their retirement plan annually upon reaching a specific age. On January 1, 2023, the SECURE Act 2.0 increased this age to 73, and in 2033, it will increase to 75. RMDs are generally calculated utilizing a life expectancy table published by the IRS. Some states, such as Florida, may utilize a different life expectancy chart.
Type of Retirement Savings Plan
Roth IRAs are different from other retirement savings plans. Rather than funded with pre-tax income, they are funded with income that has already been taxed. Furthermore, there is no RMD. However, many states, such as Ohio, may exempt a Roth IRA if the owner is taking regular, periodic payments from their account. These payments would count towards Medicaid?s income limit.
Employer pensions do not count towards Medicaid?s asset limit. This is because they do not have a principal balance and the payments stop when the individual passes away. Pension payments are treated as income.
Medicaid?s Financial Limitations & Relevance to IRAs
In states where your resident?s IRA is countable, or the RMD is being taken, Medicaid?s financial limitations are crucial to this discussion. Your client?s IRA could potentially push them over either Medicaid?s asset limit or income limit, causing them to be ineligible for Medicaid. The guidelines below are relevant in 2023 for assisted living services via a Medicaid Waiver (such as California and Ohio?s Assisted Living Waiver) as well as for Nursing Home Medicaid.
While asset limits are state-specific, generally speaking, in 2023 the limit is $2,000 for an individual and $3,000 for a couple. A notable exception is California, with an asset limit of $130,000 for an individual and $195,000 for a couple. A non-exempt IRA, therefore, can fairly easily push your resident over Medicaid?s asset limit.
For married couples with just one spouse as an applicant, spousal impoverishment provisions permit a larger amount of the couple?s countable assets to be protected as a Community Spouse Resource Allowance (CSRA) for the non-applicant spouse. This generally allows the non-applicant spouse to retain up to $148,620 of the couple?s assets. The exact amount, and how it is calculated, varies based on the state. Some states limit the non-applicant?s share to 50% of the assets, up to $148,620, and other states allow 100%, up to this amount. Some states use a smaller CSRA figure, such as South Carolina, which limits it to $66,480. In some cases, the CSRA may protect one?s IRA, or in the very least, a portion of it. Note that the applicant spouse is still limited to $2,000 in assets. Again these numbers are relevant for 2023.
The applicant income limit varies based on the state, but in general in 2023, is $2,742 / month. If a resident is taking the RMD from their IRA, the account balance is exempt from Medicaid?s asset limit, but the RMD counts as income. If their RMD pushes their total monthly income over $2,742 / month, they will be income-ineligible.
If your resident has a non-applicant spouse, the spouse?s income is disregarded. Therefore, any income they receive (including income from a RMD) does not impact your resident?s income eligibility. Additionally, the non-applicant spouse may be entitled to a Monthly Maintenance Needs Allowance (MMNA) from your resident. This allows them to transfer a portion of their income to their spouse. The exact monthly amount that can be transferred is state-specific, but many states permit a maximum MMNA of $3,715.50. Some states, such as Alabama, set a lower MMNA, which is $2,465. The exact amount that can be transferred is based on the non-applicant spouse?s current income, and in some states, their shelter and utility costs. If your resident has ?excess? income (i.e., from RMDs from an IRA), the MMNA can help lower their countable income, potentially allowing an otherwise income-ineligible resident to become income-eligible.
Solutions for Non-Exempt IRAs
If your resident?s and / or their spouse?s IRA is non-exempt, they can still become Medicaid-eligible. The most common solutions to turn countable retirement savings plans into non-countable assets are listed below. Note that if these planning strategies are not implemented properly, or your resident does not ?spend down? excess funds appropriately, they could violate Medicaid?s 60-month Look-Back Rule, resulting in a Penalty Period of Medicaid ineligibility. The rules regarding any planning strategy can vary based on one?s state of residence, and therefore, an understanding of the rules in your state is crucial.
Put it in ?Payout? Status
In states that require a resident to be taking the RMD for IRA exemption, this is an easy fix. They can start taking regular, periodic distributions based on life expectancy. There is no penalty and taxes associated with doing this if your client is at least 59 ½ years old. Persons who have Roth IRAs may also be able to put their accounts in payout status. Remember that the payments will count towards Medicaid?s income limit and may put them over the income limit. However, there are state-specific solutions for that as well.
Liquidate & ?Spend Down?
Your resident can cash out their IRA and ?spend down? the funds on exempt assets and / or allowable expenses such as assisted living until they meet Medicaid?s asset limit. Options include purchasing an Irrevocable Funeral Trust, making home modifications for safety and accessibility, paying off existing debt, and paying fair market value for long-term care.
Convert it into an Annuity
Medicaid-Compliant Annuities can be funded with one?s IRA and immediately turn a countable IRA into an irrevocable stream of income. If annuity income is in your resident?s name, it will count towards the Medicaid income limit. If it is in the name of your resident?s non-applicant spouse, it will not count towards the income limit.
For assisted living administrators, this all means they should know their state?s Medicaid programs IRA policy, as much as possible, they should know the value of their resident?s IRAs and they should be aware of how long it really takes to prepare for and apply for Medicaid (at least 6 months). They can advise their residents when to begin planning for Medicaid whether that is to keep the resident in their community as a Medicaid beneficiary or whether it is to help them transition to a Medicaid nursing home.