This is a revision of our December 2018 article about Indiana’s Spring 2018 policy that allowed a Medicaid applicant to keep an IRA. Indiana has withdrawn that policy, so nursing home residents’ IRAs and comparable retirement plans are once again exposed to long-term care costs. This updated article explains the policy reversal and provides additional information about estate planning and long-term care asset protection planning with IRAs and comparable retirement plans.
2020 UPDATE: Indiana now counts IRAs owned by the healthier spouse (called the “community spouse”) in the initial resource assessment of Medicaid eligibility for the disabled spouse/applicant (called the “institutional spouse”).
Medicaid Policy Changes for IRAs
Indiana Medicaid policy changed within the past 5 years to allow a married nursing home resident’s spouse to keep the spouse’s IRA plus other assets. The state of Indiana surprised elder law attorneys with a 2018 Medicaid policy change about a nursing home resident’s IRA. The surprising part of the new policy was that nursing home resident did not have to cash an IRA and spend the money down to $2,000 if the resident receives regular, periodic the retirement account payments. The new Medicaid policy treated retirement account payments as income that the resident must pay for nursing home care.
Medicaid IRA Rule Problem for IRA Owners Over 70 ½ Years of Age
Federal tax law requires an IRA owner must withdraw required minimum distributions (RMD) from an IRA after reaching 70 ½ years of age. The amount of the RMD changes each year as the IRA owner’s life expectancy changes. Indiana’s rescinded 2018 IRA rule would have allowed a nursing home resident to withdraw the RMDs on a regular monthly schedule without having to cash the IRA and pay income taxes on the lump sum IRA withdrawal. Indiana’s cancellation of this favorable policy sets IRA owners back to their position before the statement adopted its short-lived policy.
Probable Future Medicaid IRA Rule Changes
The state of Indiana often changes a new Medicaid rule several times before settling on a clear rule. At about the same time as Indiana changed its IRA rule in spring 2018, the state also changed its rules on life insurance policies and prepaid funeral plans at least twice. These radical policy changes happen from time to time without public notice. This is why the attorneys of Hawkins Elder Law and their elder law colleagues must monitor Medicaid policy changes constantly.
Asset Protection Planning Big Picture
These Medicaid rule changes are just the latest examples of Medicaid law turbulence. Most experienced elder law attorneys focus cautiously on the big picture about all Medicaid rules. Medicaid law turbulence increases the need for people to seek estate planning and asset protection guidance from experienced elder law attorneys.
More Information About IRAs and Long-Term Care Asset Protection Planning
For more information about estate planning and long-term care asset protection planning with IRAs and similar kinds of retirement plans, please see the following these other articles on the Hawkins Elder Law Blog:
- Planning with Retirement Plans, Annuities, and Life Insurance
- IRA Planning for Long-Term Care and Longevity
- Plan for Nursing Home Care – Even If You Don’t Want to Go
- Have You Withdrawn Enough from Your IRA This Year?
About the Authors
Jeff R. Hawkins and Jennifer J. Hawkins have practiced in the areas of trusts, estates, and elder law for over 26 years. Both lawyers are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers and active members of the Indiana State Bar Association and National Academy of Elder Law Attorneys. Both lawyers are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois.
Jeff Hawkins is a Fellow of the American College of Trust and Estate Counsel and the Indiana Bar Foundation; and a member of the Illinois State Bar Association. He was also the 2014-15 President of the Indiana State Bar Association.
Find more information about these and other topics at www.HawkinsLaw.com. © Copyright 2019 Hawkins Law PC. All rights reserved.
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