IRAs and Different State Provisions (2 of 3)
By Jeffery Levine, IRA Technical Expert
Follow Me on Twitter: @IRAGuru4EdSlott
When many people think about the rules that govern IRAs, they see them as universal rules, applicable to everyone equally in all circumstances. While many rules do, in fact, apply to everyone equally, variations in state law can also create significant differences in how IRAs are treated in different states. In order to make sure your plan is as effective as possible, you should be sure it not only addresses Federal law, but the unique challenges that may arise as a result of the specific laws applicable in your state.
2) Medicaid Treatment of IRAs and Roth IRAs
Medicaid is a partnership program between the Federal Government and the States and therefore, Medicaid eligibility rules vary from state to state. In many states, once you reach your required beginning date (April 1 of the year following the year you turn 70 ½), also commonly referred to as “pay status” and have started required minimum distributions (RMDs), the state Medicaid rules no longer treat your IRA as a countable asset subject to the claims of Medicaid, but instead treat your RMD part of your countable income. Therefore, the remainder of the account is shielded from the reach of Medicaid. In contrast, since Roth IRAs never reach pay status, many states always treat them as an available asset, and thus, are always within the reach of Medicaid.
While many states follow the rules outlined above or similar rules, some states differ dramatically. Under the Social Security Act, states are given the ability to modify the Medicaid eligibility rules within certain guidelines, and as such, in certain states, IRAs may be far less protected from the reach of Medicaid than others. You should be sure to check and see how your state treats IRAs, Roth IRAs and other retirement accounts for Medicaid eligibility so you can plan accordingly.