Retirement accounts are among the most common assets seniors hold, making it essential to understand how they fit into crisis Medicaid planning. If your client or their spouse owns an IRA that’s considered countable in their state, it must be eliminated before they can qualify for Medicaid.

However, liquidating an IRA can trigger significant tax consequences. Fortunately, your client can avoid this by transferring IRA funds into a Medicaid Compliant Annuity (MCA) as part of their Medicaid spend-down strategy.

Are IRAs Countable or Exempt?

Nate Ziolkowski  Medicaid Annuity Sales Manager Krause Agency

Every state treats IRAs differently for Medicaid purposes. Some classify them as countable assets, while others exempt them if they meet certain requirements, such as being in payout status. Knowing how your state categorizes IRAs is the first step in determining the best planning approach.

IRAs belonging to both spouses are countable: AL, AR, AZ, CO, AT, HI, IA, IL, IN, LA, MA, MD, ME, MI, MN, MO, MT, NC, NE, NH, NJ, NM, NV, OK, OR, SD, TN, UT, VA, WA

IRAs belonging to the community spouse are exempt: AK, DE, KS, PA, WI, WV, WY

IRAs belonging to both spouses are exempt*: CA, DC, FL, GA, ID, KY, MS, ND, NY, OH, RI, SC, TX, VT

*In some states, an IRA is only exempt if the owner is taking their RMDs.

The Consequences of Liquidating an IRA

When a client liquidates their IRA, the entire balance becomes taxable income in the year it’s received. This often results in:

• A higher income tax rate for that year
• Possible taxation of Social Security benefits
• Increased Medicare Part B and Part D premiums

In short, cashing out can create a ripple effect of tax burdens, just when your client can least afford it.

That’s where a Medicaid Compliant Annuity can help.

Transferring IRA Funds to a Medicaid Compliant Annuity

If your client’s IRA is countable, funding it into a tax-qualified MCA allows them to preserve assets while avoiding immediate taxation. The transfer itself is not a taxable event. Instead, income taxes are applied over each calendar year as annuity payments are made. Choosing a longer annuity term can spread out the tax impact and enhance the financial benefit for the client.

Eliminating Countable IRAs for Medicaid

When it comes to crisis Medicaid planning, retirement accounts present both challenges and opportunities. For clients in states where IRAs are countable, converting those funds into a Medicaid Compliant Annuity is often the best path forward. This strategy allows clients to:

• Preserve retirement savings
• Minimize tax exposure
• Qualify for Medicaid faster

As an advisor, understanding how IRAs interact with Medicaid rules positions you as a knowledgeable and trusted resource.

Partner with Experts in Medicaid Planning

Navigating Medicaid’s complex asset rules doesn’t have to be overwhelming. At Krause Agency, we help agents implement strategies that protect clients’ wealth and secure eligibility.

Have questions about using an MCA in your client’s plan? Book a call with our team to get expert guidance and start putting these strategies into action.