Does a 401k Count as Income for Medicaid?

Medicaid is a government healthcare program in the United States, providing health coverage to millions of eligible low-income adults, children, pregnant women, elderly adults, and people with disabilities. Jointly funded by federal and state governments, each state administers its program according to federal requirements. States have flexibility in determining specific eligibility criteria and benefits. A central aspect for individuals seeking Medicaid coverage is meeting the program’s financial eligibility requirements.

Understanding Medicaid Financial Eligibility

Medicaid uses specific financial eligibility criteria, including limits on both income and assets. Applicants must demonstrate their financial holdings fall within these thresholds to qualify. Income refers to money received regularly, such as wages, Social Security benefits, and pensions.

Assets are items of value that can be converted into cash. Common examples of countable assets include funds in checking and savings accounts, certificates of deposit, stocks, and bonds. Not all assets are countable; certain items are exempt, such as a primary residence, one vehicle, and personal belongings. While federal guidelines provide a framework, each state sets its own income and asset limits, leading to variations. For instance, in most states for 2025, the asset limit for an individual seeking long-term care Medicaid is $2,000, and the monthly income limit is typically $2,901.

Treatment of 401k Balances as Assets

The value of a 401k account is generally considered an asset for Medicaid eligibility. However, its treatment as a “countable” asset varies by state and depends on the account’s “payout status.” An account is in payout status when the owner receives regular distributions, such as Required Minimum Distributions (RMDs).

Some states categorize 401ks as exempt assets if they are in payout status, meaning the balance does not count against the asset limit. In these states, while the account balance is protected, any distributions received are counted as income. For example, states like Florida, Georgia, New York, and Mississippi may not count an Individual Retirement Account (IRA) as an asset if it is generating distributions.

Conversely, many other states consider 401k balances countable assets regardless of payout status. States such as Arizona, Massachusetts, Missouri, and Pennsylvania often count 401ks towards the asset limit even if distributions are being taken. If a 401k account is not in payout status, its entire balance is typically counted as a countable asset. If the account holder can withdraw the full amount, even with tax penalties, the entire sum may be deemed an available and countable asset by Medicaid. This distinction between accessible and inaccessible assets, and how states interpret the ability to access funds, is important in Medicaid planning.

Treatment of 401k Distributions as Income

Distributions from a 401k, whether monthly payments, periodic withdrawals, or Required Minimum Distributions (RMDs), are generally considered income for Medicaid eligibility. RMDs are mandatory withdrawals from traditional retirement accounts that typically begin when the account holder reaches age 73 for those born in 1950 or later. Even if RMDs are not immediately spent, their value is included in the applicant’s income calculation.

These distributions combine with other income sources, such as Social Security benefits or pension payments, to determine if the applicant’s total monthly income remains within the state’s Medicaid limits. For example, in most states, the individual monthly income limit for nursing home Medicaid or Home and Community-Based Services (HCBS) waivers is $2,901 in 2025. If the sum of all income, including 401k distributions, surpasses this threshold, the applicant may not qualify for Medicaid.

In states where the 401k account balance is exempt from asset calculations if in payout status, the monthly payments from the 401k are counted as income, and exceeding the income limit could affect eligibility. Only actual distributions are counted as income, not the entire 401k balance, which is treated separately as an asset. States may also use their own life expectancy tables to calculate RMDs for Medicaid, which can result in different monthly income figures compared to IRS calculations.

Impact of Spousal Rules on 401ks

When one spouse applies for Medicaid long-term care services while the other spouse resides in the community, “spousal impoverishment” rules apply. These provisions prevent the community spouse from facing financial hardship due to the costs of long-term care for their partner. All assets of a married couple are generally considered jointly owned for Medicaid eligibility, regardless of whose name is on the account.

The Community Spouse Resource Allowance (CSRA) protects a portion of the couple’s combined countable assets for the community spouse. In 2025, the federal minimum CSRA is $31,584, and the maximum is $157,920, with states setting limits within this range. A 401k owned by either spouse may be factored into these calculations; some states may exempt a non-applicant spouse’s 401k, particularly if it is in payout status. For instance, in Wisconsin, a non-applicant spouse’s 401k is exempt from asset calculations.

The Minimum Monthly Maintenance Needs Allowance (MMMNA) ensures the community spouse has sufficient income to meet living expenses. If the community spouse’s income falls below their state’s established MMMNA, they may receive a portion of the institutionalized spouse’s income, including any 401k distributions, to reach that threshold. For 2025, the federal MMMNA can range from approximately $2,644 to $3,948 per month, varying by state. These spousal protections balance the applicant’s need for Medicaid coverage with the financial security of the spouse remaining in the community.