One of the most popular, and important, components of a comprehensive estate plan is Medicaid planning. You may have made it through several decades without ever needing to qualify for Medicaid; however, that could change rapidly once you reach your retirement years if you need long-term care. You may have also heard a number of disconcerting things about Medicaid eligibility, most of which likely revolve around the loss of assets as a result of the need to qualify for Medicaid. If you have a 401(k) that has a sizeable amount of funds in it, you may be wondering “Can Medicaid take my 401(k)?”
Retirement Account Basics
Faced with the need to plan for their own retirement, self-funded options such as Individual Retirement Accounts (IRAs), 401(k)s, and other tax-deferred retirement accounts have become increasingly popular with workers. The number of different IRAs and other types of retirement accounts continues to grow. A 401(k), named for the section of the Tax Code that governs them, is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account.
Why Would I Need to Qualify for Medicaid?
As you age, the likelihood of needing some type of long-term care (LTC) increases. If you (or a spouse) do end up needing LTC, you will find the cost of that care to be prohibitive. Nationwide, the average cost of a year in LTC for 2017 was over $80,000 and the average length of stay was three years. Making matters worse is the fact that neither Medicare nor most basic health insurance plans will pay for expenses related to LTC. Consequently, you may be forced to pay for LTC out of pocket unless you are eligible for Medicaid which does cover LTC expenses.
Medicaid is a healthcare program that is primarily funded by the federal government but is administered by the individual states. Consequently, you will find that the eligibility requirements and benefits offered will differ somewhat among the states. All states, however, impose both income and asset limits on applicants. It is these limits that cause many of the concerns over the loss of assets when qualifying for Medicaid becomes necessary. In most states, an applicant cannot have more than $2,000 in countable resources if he/she wishes to qualify for Medicaid. Certain assets, such as a home (up to a certain equity amount) and a vehicle are typically exempt when calculating the value of resources for Medicaid eligibility purposes. Most states, however, do include the value of retirement accounts, such as a 401(k), when determining Medicaid eligibility. At a bare minimum, you will likely be required to attempt to obtain any benefits from the account to which you are entitled, even if you face serious negative tax consequences for doing so. In short, if you are planning ahead for Medicaid eligibility, you should assume that the funds held in a retirement account will be counted as a resource for eligibility purposes and plan accordingly.
Medicaid Estate Recovery Program
Yet another concern when looking ahead to the need to qualify for Medicaid is the Medicaid Estate Recovery Program (MERP). MERP allows the state to file a claim against your estate to recoup funds paid on your behalf by the state if you received Medicaid benefits after the age of 55. In other words, if Medicaid paid your LTC expenses while you were alive, your estate assets could be at risk once you are gone.
How Can Medicaid Planning Help?
In summary, your 401(k) account is not safe from Medicaid. If you need to qualify, you could be forced to use the funds in your 401(k) account to cover your LTC expenses before Medicaid will consider you eligible OR Medicaid could file a claim against your estate if the account is still active at the time of your death. The key to protecting your hard-earned retirement funds is to consult with a Medicaid planning attorney now before you find yourself faced with the need to qualify for Medicaid in the future.
Contact Medicaid Planning Attorneys
Please join us for an upcoming FREE seminar. If you have additional questions or concerns about Medicaid planning in North Dakota, contact the Medicaid planning attorneys at German Law by calling 701-738-0060 to schedule an appointment.