What to Know About 401(k)s, IRAs and Medicaid Eligibility in New Jersey
Long-term care costs are significant. Even a relatively short period in a nursing home could cost tens of thousands of dollars. Long-term care in New Jersey averages over $100,000 per year for a private room in a licensed assisted living facility. Here, our New Jersey estate planning attorneys explain the key points to 401(k)s, IRAs, and Medicaid eligibility.
Medicaid Provides Long-Term Care Coverage—But it is Strictly Means-Tested
A common misconception is that you can get coverage for a nursing home or long-term care through Medicare. With narrow exceptions for short-term needs, that is generally not the case. Medicaid is the federally-backed program that provides long-term care services to seniors who have a medical need. Unlike Medicare, Medicaid is strictly-means tested. A senior will not qualify for Medicaid if their income or assets are too high. They must “spend down” the excess first—meaning they will need to contribute that amount to their own costs before Medicare steps in.
401(k)s and IRAs are Countable Financial Resources in New Jersey (Medicaid Planning)
Unfortunately, New Jersey has very strict criteria around what qualifies as a countable financial resource—and that is true for both assets and income. As explained by the New Jersey Department of Human Services, 401(k)s and IRAs are both considered countable financial resources. In other words, their value will be included in the financial eligibility assessment. If no withdrawals are being made, a retirement count is a countable asset. If withdrawals are being made, that portion is “income” to the applicant. To qualify, individuals must often “spend down” their assets to meet Medicaid’s strict resource limits. With that being said, strategic long-term planning may be an option to help protect retirement savings.
Proactive Long-Term Care Planning Can Help to Provide the Maximum Asset Protection
Asset protection can offer a solution for many people and families who want to protect themselves from the risks posed by long-term care costs. As noted adobe, in New Jersey, 401(k) accounts and IRA accounts are typically considered countable assets for Medicaid eligibility. While moving a 401(k) directly into a trust is generally not possible without significant tax consequences—the reason being that such a will require liquidating the account, thereby triggering income taxes—there are often legal strategies that can be used. As an example, one approach may involve converting the 401(k) into an annuity and using a Medicaid-compliant irrevocable trust for other assets while spending down the 401(k) in a strategic manner. The sooner you get started with long-term, the easier it will be to protect your assets. A New Jersey estate planning attorney can review your situation and help you develop the most effective strategy.
Note: Proactive planning is key. Medicaid has a five-year “look-back” period. Any transfers made within five years of applying for long-term care coverage through Medicaid are subject to review.
Consult With Our New Jersey Medicaid Planning Lawyer
At Poulos LoPiccolo PC, our New Jersey Medicaid planning attorney has the professional experience that you can trust to protect your best interests. If you have any questions about 401(k)s or IRAs and Medicaid eligibility, please do not hesitate to contact us today. We provide solutions-focused estate planning services throughout all of New Jersey.
Source:
nj.gov/humanservices/dmahs/home/mltss.html
