Navigating the complexities of Medicaid eligibility can be a daunting task, especially when it comes to understanding how Individual Retirement Accounts (IRAs) are treated. To ensure you have a clear understanding of how your retirement savings might affect your Medicaid eligibility, we’ve broken down the recent policy updates from the Ohio Department of Medicaid.
Key Changes to IRA Treatment for Medicaid
The Ohio Department of Medicaid issued new guidelines, effective May 26, 2022, clarifying how IRAs are evaluated for Medicaid eligibility.
Here are the critical takeaways:
- Retirement Funds as Income: According to the Ohio Administrative Code (OAC) rule 5160:1-3-03.10, any retirement fund from which an individual can receive regular, guaranteed lifetime payments is treated as unearned income rather than a resource. This means that your IRA payments, if structured correctly, will be considered as income and not as an asset that could disqualify you from Medicaid.
- Required Minimum Distributions (RMDs): The IRS mandates that IRA owners take mandatory withdrawals, known as RMDs, upon reaching a certain age. The SECURE Act of 2019 changed this age to 72 (from 70½ for those born on or before June 30, 1949). For Medicaid purposes, you must take RMDs or regular periodic payments from your IRA, or the entire value of the IRA will be considered a countable resource.
- Roth IRAs: While Roth IRAs do not require RMDs, for Medicaid, you must take regular, periodic payments from your Roth IRA. If you choose not to, the Roth IRA's full value will be counted as a resource.
- Regular, Periodic Payments: These payments are defined as amounts paid at regular intervals (weekly, monthly, or annually) for more than one year. Importantly, the amount of each payment does not affect its classification; it is the frequency that matters.
- Handling Multiple IRAs: If you have more than one IRA, the RMDs for each account must be calculated separately. However, you can aggregate these RMDs and take the total amount from one or more of your IRAs. The key is to ensure the total required amount is withdrawn annually.
- Special Cases and Lump-Sum Withdrawals: If you withdraw a lump sum from your IRA, it will be treated as income in the month received and as a resource in subsequent months. This could potentially impact your Medicaid eligibility.
Practical Steps to Ensure Compliance
To ensure your IRAs are managed in a way that protects your Medicaid eligibility:
- Start Taking RMDs or Periodic Payments: Even if you're not yet required to take RMDs, begin taking regular, periodic payments. This will help classify your IRA as income rather than a resource.
- Document Everything: Keep thorough records of your IRA statements and payout schedules. Providing documentation such as plan statements, distribution request forms, or letters from your plan administrator will help verify your IRA's payout status.
- Consult with Professionals: Whether it's calculating your RMDs or understanding the best payout strategy, consulting with a tax professional or your plan administrator is crucial.
Case Example: The Impact of Not Taking RMDs
Consider Jeffrey and Linda, a couple facing this exact scenario. Jeffrey needed to apply for Medicaid after a stroke, and his wife Linda had an IRA with a balance of $130,000. Linda, being under 70½, chose not to take RMDs to avoid penalties. However, because she wasn't taking periodic payments, her entire IRA was considered a resource, affecting Jeffrey's Medicaid eligibility. Had Linda opted to take periodic payments, the IRA would have been counted as income instead.
We're Here to Help You Navigate These Complex Rules
Understanding how IRAs impact Medicaid eligibility is essential for anyone planning for long-term care. By taking regular, periodic payments and properly documenting your distributions, you can ensure that your retirement savings are managed effectively, protecting your Medicaid eligibility.
For more personalized advice and to discuss your specific situation, don't hesitate to reach out. We're here to help you navigate these complex rules and make the best decisions for your financial future.
Michael Embrescia is a financial advisor located at EmVision Capital Advisors, 251 W. Garfield Rd. Suite 155 Aurora, OH 44202. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (330) 954-3770 or at info@emvisioncapital.com.