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A Medicaid professional consultant helping an elderly woman to protect her assets and money from the nursing home spend down.

Medicaid IRA & Medicaid 401(k)

Discuss Medicaid IRA and Medicaid 401(k) rules

Medicaid IRA and Medicaid 401(k) – Medicaid agencies will look for a 401(k) emergency clause

When it comes to Medicaid planning, all IRAs and 401(k) plans should be combined. Before this is done, they should first be distinguished. All 401(k) plans are protected by the Federal law from any and all creditors. IRAs are not always protected. However, many Medicaid agencies will take a look at the 401(k) account and ask what the emergency clause is. This clause will typically state that if the owner of the account has a medical problem, they can withdraw a certain amount of money from the 401(k) account if they are still employed. This is applicable to either the ill or well spouse. If this clause is in place, Medicaid will ask the owner to withdraw some of the money and spend down the account. If the contract says that no withdrawals can be made while employed, then the money in the account is protected.

Medicaid IRA – transferring IRA balance to a Medicaid Compliant Annuity IRA owned by community spouse

If the money in the 401(k) is available in the case of an emergency and IRA balances are available as well, this will create a different situation. No matter what spouse it is, the community spouse of the Medicaid applicant, these accounts will be an available and countable resource. In order to protect the IRA that is in the name of the Community spouse, it should be transferred to a Medicaid Compliant Annuity IRA. This will then turn the asset into income that will follow the well spouse and will not be subject to an income spend down.

Medicaid IRA that is in the Medicaid spouse's name

If the IRA is in the name of the Medicaid spouse, it may present a problem. If the IRA account is turned into an annuity or a source of income, that money will not go into an account for the Medicaid spouse. Instead the money will go to the nursing home to pay for care. On the other hand, if the IRA account is cashed out, there will be a huge tax issue.
No matter what the situation is, it is important to preserve these accounts. The best way to do this is to roll the IRA account that is owned by the Medicaid spouse out as cash into another type of account that cannot be depleted by Medicaid and initiate a Medicaid spend down of those assets.

Options after transferring money from IRA accounts to avoid Medicaid spend down

Following the transfer of the money in the IRA accounts, the after-tax money should be placed into a non-qualified SPIA. This will be used to help provide a source of income for the community spouse. An additional option is to purchase some type of funeral or burial service in an irrevocable trust. Another thing that can be done is paying off, or paying down a mortgage.
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