IRA and Medicaid
This is a question I’ve never had before, so I’d appreciate any direction you could give.
A client’s spouse has become disabled and is applying for Medicaid. To qualify his assets must be below a certain threshold. It appears as though the non-disabled spouse’s assets (IRA/Roth/QP) also affect the disabled spouses ability to apply. The couple has been advised to draw down the non-disabled spouse’s IRA assets so that the disabled spouse can qualify for Medicaid. Both individuals are under age 59 1/2 and file joint returns. A few questions:
1. Does the “disability” exception to the 10% penalty allow a non-disabled person to take a distribution if their spouse is disabled? It doesn’t appear to, but I thought I’d check!
2. The IRA assets do not affect benefits eligibility if the IRA is in “payout status”. Presumably, that would be RMDs; however, I’m wondering if SEPP would work, too. Any thoughts?
3. Would filing separate returns make a difference?
Any guidance would be appreciated!
Permalink Submitted by Alan Spross on Thu, 2012-05-03 23:30
1) You are correct. The disability exception only applies to the IRA of the disabled spouse (unlike the broader medical expenses and higher education expenses). That said, the pre Medicaid expenses may well be high enough to provide the penalty exception for the IRA distributions.
2) A SEPP would work to eliminate the penalty, except that the payout rate would probably be too slow (less than 5% of balance annually) for spend down Medicaid requirements. Will have do some research to determine how “payout status” is defined. Possibly, there could be some variances by state.
3) Separate returns would probably not make a difference with respect to Medicaid, it would probably just increase their income tax bill.
I don’t closely follow Medicaid qualification rules, but there are firms that specialize in individual strategies. I think in some cases, annuitization could provide some benefits. Also, I think the non disabled spouse could retain around 90k in addition to the home and vehicle.
Permalink Submitted by Alanna Crawford on Fri, 2012-05-04 13:12
Very much appreciated- thank you!