Q. My wife needs care in a nursing home, and we really need a Medi-Cal subsidy to help with the cost, which may run close to $10,000 per month. However, I have a large IRA worth about $650,000. I have received conflicting advice as to whether my IRA would make her ineligible for a Medi-Cal subsidy. I am hoping that you can clarify this for us?
A. I think I can. Here’s the way Medi-Cal treats IRA accounts, as well as other retirement accounts such as 401K’s and 403(b)’s.
The two threshold questions are: (1) Is the proposed Medi-Cal beneficiary married or single? and (2) Which spouse owns the IRA?
Let’s take married couples first, and for clarity I will use the terms “Ill Spouse” (for the nursing him spouse who needs the Medi-Cal subsidy), and “Well Spouse” (for the spouse living at home).
Married Couple: IRA in the Name of the Ill Spouse: If the IRA is in the name of the Ill Spouse, the IRA can be easily converted into a non-countable asset by the simple act of taking Minimum Required Distributions (“MRD’s”) under IRS rules. Medi-Cal will then not count the IRA as a resource, although it will count the MRD’s as income. This MRD income then goes toward Share of Cost (“co-pay”), usually increasing it only modestly. Thus, by taking MRD’s, the IRA is effectively rendered exempt, usually paving the way for the ill spouse to qualify for a Medi-Cal subsidy with only a modest increase in her Share of Cost.
Married Couple: IRA in the Name of the Well Spouse: If the IRA or other retirement account is the name of the Well Spouse, it is not counted it all ! In this situation, there is not even a need for the well spouse to begin taking MRD’s. Thus, in your situation, your $650,000 IRA will not count it all when Medi-Cal considers your wife’s application for a Medi-Cal nursing home subsidy.
Single individual: An IRA in the name of a single individual who needs a Medi-Cal subsidy is treated the same as an IRA in the name of an Ill Spouse. In both situations, the owner must be receiving, or arrange to begin receiving, MRD’s in order for the IRA not to count.
Planning Option For Younger Individuals Not Yet Receiving MRD’s: For individuals under age 70.5 who have not yet started MRD’s, there is another option: as an alternative to taking full MRD’s, they may opt to commence only bare-bones withdrawals representing only “periodic distributions of income and principal”. This is technically all that Medi-Cal requires, and the withdrawal of some interest and some principal appears to meet the test. These more modest withdrawals would effectively reduce the IRA income and, correspondingly, the patient’s Share of Cost. This optional approach could continue to age 70.5, when full MRD’s then become mandatory under IRS rules.
In short, ownership of an IRA – whether in your name or your wife’s name — need not be disqualifying. With proper planning, it can be rendered “non-countable” effectively rendering it as exempt. So, if your other countable resources are within Medi-Cal limits, then your wife should qualify for the much-needed Medi-Cal nursing subsidy. I do hope that this was the good news that you were seeking