Q. My wife may soon need nursing care and I will need to apply for a Medi-Cal subsidy to help with the cost. Our incomes are modest and, aside from our home, most of our savings is in the form of our IRA’s. A friend thought I would have to cash them out and “spend down” the proceeds before my wife would be eligible. Does that sound right to you?
A. Not at all. I am sure your friend means well, but he or she is misinformed. Funds held inside an Individual Retirement Account (“IRA”) are not counted in determining whether your nonexempt assets are above the Medi-Cal resource ceilings, provided that certain requirements are met. Here is how Medi-Cal views IRA’s:
IRA In Your Wife’s Name: As the spouse needing nursing care, the IRA in your wife’s name will not be counted in determining whether your assets exceed the Medi-Cal resource ceilings, provided that she is receiving periodic distributions of “income and principal”. Usually this requirement is satisfied by drawing out the Minimum Required Distributions (“MRD”) under IRS rules. So long as she takes the MRD’s, whether as monthly, quarterly or annual draws, Medi-Cal will treat her entire IRA as “unavailable” and will not count its value when determining her eligibility. Medi-Cal will, however, treat the MRD distributions as income, which may then go toward her “co-pay” (which Medi-Cal calls ‘Share of Cost’).
IRA in Your Own Name: As the At-Home spouse, the IRA in your own name does not count at all, regardless of whether you are receiving any distributions. In essence, the Medi-Cal rules encourage you to conserve your retirement nest egg and use it for its intended purpose.
We generally suggest that a person in your wife’s situation take out the bare minimum from her IRA as necessary to comply with both Medi-Cal rules and IRS rules. This strategy keeps her Share of Cost low and still allows her to qualify for a Medi-Cal subsidy to cover the remaining cost of care.
Also know that your IRA’s – whether in her name or in your name – can be worth any amount and still be non-countable. There is no upward ceiling on value. In the eyes of Medi-Cal, the only difference between her IRA and yours is that she must be receiving MRD’s in order to render hers non-countable. And, by the way, Medi-Cal applies the same rules to other retirement accounts, such as 401(k)’s, 403(b)’s, Roth IRAs, and the like. So, in your case, provided that your other savings and nonexempt assets do not exceed the Medi-Cal resource ceilings (currently, $117,240 for the At-Home spouse and $2,000 for the ill spouse), your wife should qualify for a Medi-Cal nursing home subsidy.
Caution: We find that couples in your situation are sometimes told that they need to convert the money in their IRA’s into an annuity in order to render the proceeds exempt for Medi-Cal purposes. That is not the case, and such conversion is almost always both unnecessary and inadvisable.
In short, the way Medi-Cal treats IRA’s and other retirement accounts is designed to help individuals and couples manage the high cost of nursing care without unduly draining their retirement nest eggs.