Can Medicaid Take Your 401k? Asset Rules & Protections

Medicaid provides health coverage to millions of Americans. A common concern is how it impacts personal assets, especially retirement savings like a 401k. Understanding Medicaid eligibility and post-eligibility rules is important for those considering long-term care needs. The program’s guidelines determine how different asset types are evaluated, which can influence financial preparedness.

Medicaid Asset Rules

Medicaid defines an “asset” for eligibility purposes as any cash, savings, investments, and property that can be converted to cash. These are considered “countable” assets and count toward an applicant’s financial limits. Examples include checking and savings accounts, certificates of deposit, stocks, bonds, mutual funds, annuities, real estate beyond a primary residence, additional vehicles, and the cash value of certain life insurance policies.

Conversely, some assets are “exempt” or “non-countable,” meaning they do not count against eligibility limits. A primary residence is typically exempt if the applicant or a spouse lives there. One vehicle, household goods, personal effects, and prepaid funeral arrangements are also commonly exempt. Certain burial funds may also be excluded.

For 2025, the asset limit for a single individual applying for Medicaid is $2,000 in most states. For married couples where both spouses apply, the asset limit is $3,000 or $4,000. When only one spouse applies, the applicant spouse is limited to $2,000 in assets. These limits are subject to change and can have specific state variations.

Treatment of Retirement Accounts

The treatment of retirement accounts, such as 401ks and IRAs, varies by state. In many states, these accounts are countable assets if in “accumulation status,” meaning distributions are not being taken. The entire account value may count against Medicaid’s asset limits if the owner is not yet receiving distributions.

A distinction arises when a retirement account is in “payout status,” where the owner receives regular distributions. Here, the account’s principal may become exempt for Medicaid eligibility in some states, provided Required Minimum Distributions (RMDs) or other periodic payments are taken. However, payments received, including RMDs, count as income for Medicaid eligibility. This income could impact eligibility if it pushes an applicant over the state’s income limit.

If a retirement account is not in payout status, or if withdrawals exceed required amounts, the entire account value may revert to being a countable asset. Some states count retirement accounts as assets regardless of payout status. For non-applicant spouses, some states may exempt their IRA or 401k, especially if in payout status, and its income would be disregarded for the applicant spouse’s income eligibility. Converting a retirement account into an income stream or “spending down” assets on non-countable items are strategies to meet asset limits.

Spousal Protections

Medicaid includes specific protections for the applicant’s spouse, known as the “community spouse,” to prevent financial hardship. These provisions ensure the community spouse can retain a portion of the couple’s combined assets and income. The Community Spouse Resource Allowance (CSRA) allows the community spouse to keep a certain amount of the couple’s countable assets without disqualifying the institutionalized spouse from Medicaid.

For 2025, the federal minimum CSRA is $31,584, and the maximum CSRA is $157,920. States set their own CSRA limits within these federal guidelines. All assets of a married couple are considered jointly owned for Medicaid eligibility, regardless of whose name they are in. The CSRA prevents the community spouse from becoming impoverished while their partner receives long-term care.

The Minimum Monthly Maintenance Needs Allowance (MMMNA) addresses income. This allowance permits the community spouse to retain a certain amount of monthly income for living expenses. If the community spouse’s income falls below the MMMNA, a portion of the institutionalized spouse’s income may be allocated to them to reach this threshold. For 2025, the federal minimum MMMNA is $2,643.75 per month in most continental states, with a maximum of $3,948 per month. These spousal protections ensure the community spouse can maintain independence.

Medicaid Estate Recovery

Medicaid Estate Recovery Programs (MERP) are federally mandated initiatives where states seek reimbursement for long-term care costs paid by Medicaid from the deceased recipient’s estate. This process applies to benefits received by individuals aged 55 or older, and in some cases, for individuals of any age who received care in a nursing facility or other medical institution. The goal is to recover funds to support future Medicaid recipients.

For Medicaid Estate Recovery, an “estate” includes all real and personal property owned by the Medicaid recipient at death, including assets that pass through probate. Some states have “expanded recovery” provisions, allowing them to pursue “non-probate assets” like jointly owned bank accounts or those with payable-on-death designations. While a 401k or other retirement account might be exempt during eligibility if in payout status, it could become subject to recovery after death if part of the probate estate.

Common exemptions and deferrals to estate recovery exist. Recovery actions are not taken if a surviving spouse, a child under 21, or a blind or disabled child resides in the deceased recipient’s home. States may offer hardship waivers if recovery would cause undue hardship to the deceased Medicaid patient’s heirs. Specific rules and exemptions for estate recovery vary by state, making it important to understand local regulations.