Roth IRAs are generally an available resource because Roth IRA owners have no RBD.
It is important to understand that since the Medicaid program is a joint federal and state program, the Medicaid treatment of retirement accounts will vary state by state. Depending upon the state, a retirement account which is in periodic payment status (i.e., subject to required minimum distributions after age 70½), may be treated as an income stream and not as an asset for purposes of Medicaid eligibility.
For example, if John were in minimum distribution status because he was over age 70½, then the account would qualify as being in payment status. Assuming John’s retirement account totaled $500,000, this amount would not be counted against him for purposes of Medicaid eligibility. For Medicaid budgeting purposes, the minimum distribution amount would be divided by twelve and allocated into the monthly income budget. If John were to receive $24,000 as a minimum distribution, then $2,000 per month would be taken as
part of the monthly income budget.
If John was on Medicaid in a nursing home, then this money would be paid to the nursing home, less his personal needs allowance (less than $100). In the event John was married, then a portion of the distribution may be paid to his spouse, if her income was under the monthly minimum maintenance needs allowance.
Roth IRAs – A Medicaid Trap
How Roth IRAs are going to be treated for Medicaid purposes raises an interesting twist.
Since Roth IRA owners are not subject to required minimum distributions, it is likely that the local Medicaid agency will treat the Roth IRA as fully available for Medicaid eligibility purposes. This is where estate and income tax planning can fly in the face of Medicaid planning.
Often it is beneficial to convert or contribute to a Roth IRA so that funds in the Roth IRA can accumulate income tax free. Also, Roth IRA owners are never subject to required minimum distributions. They never have to withdraw from their Roth IRA if they don’t want to. But if clients are planning to qualify for Medicaid benefits, the Roth IRA could hurt them because it is counted as an available asset regardless of age. Even if a client is 99 years old, if they have a Roth IRA, the Roth IRA is not considered in pay status because there are no required distributions on the account. For Medicaid purposes, the Roth IRA owner is still treated as if they had not yet reached age 70½ (the required beginning date). The entire asset is included as an available resource for Medicaid purposes.
For Medicaid eligibility then, the traditional IRA provides more protection than the Roth IRA. As with most Medicaid provisions though, you must first check with the local Medicaid agency for its interpretation of these rules.