When applying for Medicaid nursing home coverage, different states have different rules for how retirement accounts, such as IRAs and 401(k) accounts, are treated.

To qualify for Medicaid nursing home coverage, an applicant’s total assets must fit under a fairly restrictive asset cap. Some assets, however, are exempt from being counted toward the asset cap. For most people, their main exempt asset is their primary residence.

Whether or not an asset is exempt from the asset cap is a matter of state law. While there are some commonalities across states, the differences in what is and isn’t exempt can create major planning differences between states. One major difference between states is how retirement accounts are treated for Medicaid applicants.

Some states exempt retirement accounts from the asset cap under certain circumstances. Typically, in order for the account to be exempt, the account needs to be in payout mode where the account is making regular distributions in accordance with actuarial tables. In these states, while the retirement account itself is an exempt asset, the income from the retirement account payouts can affect Medicaid eligibility. Individuals in these states need to work with an experienced elder law attorney to make sure this income is handled in a way that preserves Medicaid eligibility.

Other states, including Missouri, do not exempt retirement accounts from the Medicaid asset cap. Potential Medicaid applicants with retirement accounts may need to take steps to responsibly deal with these accounts in order to become eligible for Medicaid nursing home coverage. However, potential options for dealing with these retirement accounts, such as cashing out the account early, can have significant negative tax consequences. Individuals in these states need to work with an experienced elder law attorney to find the best approach for their specific circumstances that balances Medicaid eligibility with potential penalties for early retirement account withdrawals.

Regardless of whether or not an individual lives in a state that exempts retirement accounts from the Medicaid asset cap, planning for a potential nursing home stay and Medicaid application should begin as soon as possible. The sooner planning begins with an elder law attorney in an individual’s home state, the more likely it is an individual and their elder law attorney will develop a plan that will protect an individual’s assets in case of a potential nursing home stay.

To develop a plan to protect your assets from a potential nursing home stay, please call Martha C. Brown & Associates at (314) 962-0186.