Do Retirement Accounts Count as Assets for Medicaid?

Medicaid is a joint federal and state program providing healthcare coverage to low-income individuals and families. It serves as a resource for long-term care services. Eligibility for Medicaid is determined by financial criteria, including an applicant’s income and assets. This article explores how retirement accounts, such as IRAs and 401(k)s, are considered within Medicaid eligibility rules and during estate recovery processes.

Medicaid Asset Rules

Medicaid eligibility assesses an applicant’s financial resources, categorizing them into countable and exempt assets. Countable assets are resources Medicaid considers available for medical care, and their value must fall below specific limits for qualification. These limits are generally low, typically around $2,000 for an individual, though state variations exist.

Exempt assets are resources Medicaid does not count towards the eligibility limit. Common examples include the applicant’s primary residence (with equity limits and intent to return home, or if a spouse or dependent lives there), one vehicle, household goods, personal effects, and burial funds up to a certain amount. While federal guidelines exist, precise definitions and monetary limits for both asset types vary significantly by state.

If an applicant’s countable assets exceed the limit, they generally will not qualify. Individuals with assets above the threshold may need to “spend down” their resources on medical care or other permissible expenses to reduce countable assets to the allowable limit before becoming eligible.

Retirement Accounts and Eligibility

The treatment of retirement accounts for Medicaid eligibility depends on the account type, distribution status, and state rules. Assets in Individual Retirement Accounts (IRAs) or 401(k)s are generally countable. The full cash value of accounts in “accumulation status” (not yet receiving regular distributions) is often included in total countable assets, impacting an individual’s ability to meet asset limits.

Treatment differs once an individual receives regular payments, moving the account into “payout status.” Regular distributions, such as Required Minimum Distributions (RMDs) from IRAs or 401(k)s, are typically counted as income. While income is counted, some states may exempt the underlying principal balance once in payout status and RMDs are taken. This approach recognizes the principal’s systematic depletion through distributions, shifting focus to the generated income.

Pensions, particularly defined benefit pensions, are generally treated as income, not an asset. Monthly pension payments contribute to an applicant’s income, but the underlying fund is usually not a countable asset because the individual typically lacks direct access to the principal balance. State approaches vary; some jurisdictions count the entire balance of an IRA or 401(k) as an asset regardless of payout status, while others consider only the income stream once distributions begin.

When an applicant has a spouse not applying for Medicaid (the “community spouse”), specific rules protect a portion of their combined assets and income. The Community Spouse Resource Allowance (CSRA) allows the community spouse to retain marital assets, including a portion of retirement accounts, without disqualifying the applicant. This allowance varies by state, with a federal minimum and maximum amount that changes annually. For instance, in 2024, the CSRA range is generally between $30,828 and $154,140.

The Minimum Monthly Maintenance Needs Allowance (MMMNA) ensures the community spouse has sufficient income. If their income falls below the MMMNA, a portion of the applicant spouse’s income, including retirement account distributions, may be allocated to the community spouse. These provisions prevent impoverishment of the community spouse while the other spouse receives long-term care through Medicaid.

Retirement Accounts and Estate Recovery

Upon a Medicaid recipient’s death, the Medicaid Estate Recovery Program (MERP) allows states to recover costs of certain Medicaid benefits. This federally mandated program gives states flexibility in implementation, including which assets are subject to recovery. MERP’s purpose is to reimburse the state for healthcare costs, especially long-term care, from the deceased’s estate.

Whether retirement accounts are subject to MERP depends on if they are part of the deceased’s “probate estate” or pass as “non-probate assets.” Probate assets pass through a will or intestacy laws and are subject to probate court. Non-probate assets pass directly to named beneficiaries by contract or law, bypassing probate. Retirement accounts, like IRAs and 401(k)s, often have designated beneficiaries, typically passing as non-probate assets.

When a retirement account has a named beneficiary other than the deceased’s estate, it generally avoids probate and may be exempt from MERP in many states. This is because assets transfer directly to the beneficiary, not the probate estate from which MERP usually seeks recovery. However, if an account lacks a named beneficiary or names the estate as beneficiary, it becomes a probate asset and potentially subject to MERP.

Common exemptions and limitations to MERP can prevent recovery, even for probate assets. Recovery is generally prohibited if there is a surviving spouse, a minor child (under age 21), or a blind or permanently and totally disabled child. Some states also have hardship waivers. Understanding beneficiary designations, state probate laws, and specific MERP regulations affects the post-death treatment of retirement accounts.