Is My Retirement Plan a Countable Asset for Medicaid?

You probably know that the cost of long-term care in the United States is high, and steadily rising: in 2023, the median cost of a private room in a nursing home was $116,800. A semi-private room is likely to cost over $104,025 per year. And those are just median costs; many facilities are more expensive.

In light of the high costs, many people depend on government benefits, specifically Medicaid, to pay for long-term care. As you may also know, Medicaid has income and asset limits, and they are relatively low: the asset limit for an individual is $2,000. 

That said, there are some assets that are exempt, or non-countable, toward that limit, such as a primary residence (under certain conditions), one vehicle, certain prepaid funeral and burial plans, and personal belongings. However, many other assets are not exempt, leaving them possibly exposed to the need to “spend down” in order to qualify for Medicaid. That list includes things like additional real estate, bank accounts, stocks and bonds in the senior’s own name or jointly held with someone else.

One of the questions we frequently hear from clients is, “Is my retirement plan exempt from Medicaid?” The answer, in Michigan and many other states, is “no.”

Retirement Plans and Medicaid

Most people think of Medicaid as a federal program, as it was authorized by federal law. But Medicaid is administered by the individual states, and so the rules for what assets are countable for purposes of Medicaid eligibility vary from state to state. 

In general, there are three ways that states approach this issue. In some states, retirement plans like IRAs, 401(k)s, 403(b)s, Keoghs, and Thrift Savings Accounts (TSA) are exempt from being counted toward the asset limit for Medicaid, whether it is pre-payout status (the owner has not started taking distributions) or in payout status (distributions have started). Since most people who need nursing home care are over the age when they must begin taking required minimum distributions (RMD), most people facing a Medicaid issue are in payout mode.

A small minority of states exempt these plans from being counted for Medicaid whether the plan is in payout mode or pre-payout mode. Some states exempt these plans only if they are in payout status. And the last category of states, which includes Michigan, considers these retirement plans a countable asset whether or not they are in payout status.

What’s more, in many states (including Michigan) the account of a Medicaid applicant’s spouse may also be counted toward the applicant’s asset limit, whether or not it is in payout status. This could jeopardize not only the applicant’s Medicaid eligibility, but the spouse’s financial stability. 

How an Elder Law Attorney Can Help

For many people, their retirement plan is one of their largest assets, if not their largest, with a value well above the $2,000 asset limit. And unlike their primary residence, it is not exempt from being counted toward that limit. What is someone to do when they need nursing home care, especially if they have a spouse who is healthy enough to live outside of the nursing home?

The short answer is to consult an elder law attorney as soon as possible. An attorney who regularly deals with Medicaid planning issues can explain the best options based on the individual’s (or couple’s) particular mix of assets.

Community Spouse Resource Allowance

Fortunately, there are rules in place that help to protect the spouse who is not in the nursing home (also known as the community spouse). These “spousal impoverishment rules” are intended to keep the community spouse from becoming destitute as a result of the institutionalized spouse’s need for care. 

The Community Spouse Resource Allowance (CSRA) enables the community spouse to keep some of the couple’s combined assets that are countable for Medicaid purposes. In Michigan, currently the minimum CSRA is $30,828 and the maximum CSRA is $154,140, which could be used to keep retirement accounts. 

Minimum Monthly Maintenance Needs Allowance

There is also a Minimum Monthly Maintenance Needs Allowance (MMMNA) which is a minimum amount of monthly income that the community spouse gets to keep. If the income of the community spouse is below this threshold, they may be able to keep a portion of the institutionalized spouse’s income to reach this minimum threshold. Not only does that ensure that the community spouse has enough to meet basic living expenses, but it also reduces the institutionalized spouse’s income. That may include income from retirement accounts in payout status.

Ways to Save Your Retirement Savings

Which technique would be used to preserve some or all your retirement account savings depends in great part on whether you’re a single applicant or a married applicant.

For a married couple, it is possible to transfer the countable retirement funds into a specialized annuity in turn those funds into a stream of monthly payments to community spouse. This converts the assets from being considered a countable asset into a monthly income stream to the community spouse.

Even for single individual, it is possible to preserve a substantial portion of the retirement account savings by utilizing what is often referred to as I “have half a loaf” technique. As the old saying goes, “half a loaf is better than none.” Under some circumstances, annuities can be used to convert otherwise countable assets, including retirement accounts, into an income stream that can be used together with making a gift of the half (sometimes more than half) of the applicants’ assets. While some of the assets must be used to pay for nursing home care, about half is preserved—hence the name “half a loaf.”  While this technique can be effective, it is complex, and timing is critical.

These are just a few of the options available to preserve retirement accounts and other assets.  Sometimes if you can restructure how the applicant owns their nonretirement account assets, it can make protecting the retirement accounts unnecessary.

To comply with applicable law and maximize the retirement assets you or your spouse can keep, you need the guidance of an experienced elder law and Medicaid planning attorney.

When to Consult an Elder Law Attorney About Retirement Plans and Medicaid

In general, the earlier you consult with an elder law attorney, the more likely it is that they will be able to help you protect a greater amount of retirement assets from the nursing home. But even if one spouse is already in the nursing home, an elder law attorney can provide valuable guidance. To learn how to best preserve your retirement accounts or your spouse’s, contact Estate Planning & Elder Law Services to schedule a consultation.