Can The Retirement Plan(s) For a Married Couple Be Protected If One Spouse Needs Nursing Care?
In recent years, many people have accumulated a fair amount of assets in their retirement plans. This is often in the form of an IRA or a 401(k) or sometimes even a 403(b). Those funds grow on a tax deferred basis and can be accumulated until the account holder reaches age 70-1/2 at which point he or she needs to begin making withdrawals.
So how do those funds factor into a Medicaid spend down?
Let’s start with a married couple. Most people understand that when one spouse needs nursing care, in order to qualify for Medicaid, they go through a division of assets. The State says that the house, car, prepaid funeral plans, household goods, and a small amount of cash value life insurance is exempt from the spend down requirements.
But what about those retirement plans… can the IRA or 401(k) or 403(b) be protected?
In Kansas, the retirement plan of the Community Spouse is exempt so long as it is not an inherited IRA. In other words, if the funds were put into the plan due to the earnings of the individual, then the retirement plan assets of the community spouse are not subject to a Medicaid spend down. They are protected.
Unfortunately, the IRA of the spouse who needs care is subject to these spend down requirements. In most cases, in Kansas the IRA or 401K must be cashed in and the taxes paid as part of the spend down.
Fortunately, there are steps which can be taken to protect all or a portion of the IRA or 401(k) even when it would otherwise be countable. In some cases, this can mean cashing in the retirement plan, paying the taxes, and then putting those proceeds into a Single Premium Immediate Annuity to provide an income stream for the benefit of the Community Spouse.
Interestingly enough, in Missouri, the State follows the “name on the check” rule which states that even for the spouse who needs care, so long as the retirement plan is set up properly to pay the income to the Community or “at home” spouse, then the “at home” spouse will keep all of the income, thus preserving the retirement plan, or the income stream no matter which spouse needs care.
In these cases, great care must be taken to be sure that things are set up appropriately, but the bottom line is that the retirement plan of either spouse can sometimes be protected for the community spouse no matter who actually owns the retirement plan.
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