IRAs in Payout Status Are Exempt Assets
For many retired individuals and couples, retirement accounts comprise some of their most valued assets, often eclipsing even the house.
Historically in Ohio, IRAs have been counted as an available resource for Medicaid eligibility purposes. What this means, is, assets in an IRA were viewed by the local Job & Family Services caseworker no differently than cash, which often meant the IRA had to be liquidated and spent down before an individual could become Medicaid eligible. The fact that the IRA liquidation would also be taxed as income – and often in a high tax bracket if it must be liquidated in a short time frame – was a double whammy for individuals and couples trying to become Medicaid eligible.
Over the past 18-24 months, however, the Ohio Department of Medicaid (ODM) has started advising and educating county caseworkers to begin treating IRAs as exempt assets, i.e. not to be treated as available resources, if they are in payout status. This change was not the result of a change to the law, but instead from ODM revisiting and re-interpreting existing law, specifically Ohio Administrative Code 5160:1-3-03.10.
How does the re-interpreted law work?
To see how this change in interpretation affects individuals and couples trying to become eligible for Medicaid benefits, let us assume a hypothetical couple owning a home and non-retirement assets of $280,000. In addition, assume the husband owns a $200,000 IRA and the wife owns a $200,000 IRA. Under the prior interpretation of the IRA rules, if the husband went into a nursing home and applied for Medicaid, the house would be treated as an exempt resource (while the wife lived in it) and the remaining assets – $680,000 – would be all be treated as resources available to the couple. Under the Medicaid eligibility rules, the couple would be allowed to keep approximately $140,000 of the available resources, meaning the remaining $540,000 would have to be spent down and would require liquidating the IRAs.
Under the new interpretation of the IRA rules, the house would be an exempt resource and so would both IRAs. The result is that $280,000 – instead of $680,000 – would be treated as resources available to the couple. Again, the couple would be allowed to keep approximately $140,000 of the available resources. As such, the couple would need to spend-down the remaining $140,000 instead of $540,000. Even in a nursing home crisis situation, additional steps could be taken to reduce this $140,000 spend-down amount, which is much more manageable than trying to reduce a $540,000 spend-down amount.
Couples and individuals should be aware that under the new interpretation, required minimum distributions from the institutionalized spouse’s IRA would be treated as income and may have to be paid over to the nursing home. Moreover, the institutionalized spouse’s IRA may still be subject to Medicaid estate recovery.
A Quicker Path to Medicaid Eligibility
Although ODM’s new treatment of IRAs in payout status does not necessarily mean IRAs will be protected completely, the change does provide couples and individuals with a quicker path to Medicaid eligibility and more flexibility in trying to protect hard-earned retirement savings. If you have any questions regarding Medicaid planning, please contact one of the Medicaid and Estate Planning attorneys at FGKS Law.
