One of the most popular, and important, components of a comprehensive estate plan is Medicaid planning. You may have made it through several decades without ever needing to qualify for Medicaid; however, that could change rapidly once you reach your retirement years if you need long-term care. You may have also heard several disconcerting things about Medicaid eligibility, most of which likely revolve around the loss of assets because of the need to qualify for Medicaid. If you have a 401(k) that has a sizeable amount of funds in it, you may be wondering if those assets count for Medicaid eligibility. The Essex Junction Medicaid planning attorneys at Unsworth LaPlante, PLLC explain how your 401(k) account is treated for Medicaid eligibility.
What Is a 401(k) Account?
A 401(k), named for the section of the Tax Code that governs them, is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account.
Why Would I Need to Qualify for Medicaid?
As you age, the likelihood of needing some type of long-term care (LTC) increases. If you (or a spouse) do end up needing LTC, you will find the cost of that care to be prohibitive. Nationwide, the average cost of a year in LTC for 2021 was over $100,000 and the average length of stay was three years. Making matters worse is the fact that neither Medicare nor most basic health insurance plans will pay for expenses related to LTC. Consequently, you may be forced to pay for LTC out of pocket unless you are eligible for Medicaid which does cover LTC expenses.
Medicaid is a healthcare program that is primarily funded by the federal government but is administered by individual states. Consequently, you will find that the eligibility requirements and benefits offered will differ somewhat among the states. All states, however, impose both income and asset limits on applicants. It is these limits that cause concerns over the loss of assets when qualifying for Medicaid becomes necessary. Most states do include the value of retirement accounts, such as a 401(k), as an asset when determining Medicaid eligibility if the owner is not yet taking distributions from the account. If you are already taking distributions, those distributions will likely be counted as income when determining Medicaid eligibility. In short, if you are planning for Medicaid eligibility, you should assume that the funds held in a retirement account will be counted as a resource or as income for eligibility purposes and plan accordingly.
Medicaid Estate Recovery Program
Yet another concern when looking ahead to the need to qualify for Medicaid is the Medicaid Estate Recovery Program (MERP). MERP allows the state to file a claim against your estate to recoup funds paid on your behalf by the state if you received Medicaid benefits after the age of 55. In other words, if Medicaid paid your LTC expenses while you were alive, your estate assets could be at risk once you are gone.
How Can Medicaid Planning Help?
In summary, your 401(k) account is not safe from Medicaid. If you need to qualify, you could be forced to use the funds in your 401(k) account to cover your LTC expenses before Medicaid will consider you eligible OR Medicaid could file a claim against your estate if the account is still active at the time of your death. The key to protecting your hard-earned retirement funds is to consult with a Medicaid planning attorney now before you find yourself faced with the need to qualify for Medicaid in the future.
Contact Essex Junction Medicaid Planning Attorneys
For more information, please attend one of our upcoming FREE webinars. If you have questions or concerns about Medicaid planning, contact the experienced Essex Junction Medicaid planning attorneys at Unsworth LaPlante, PLLC by calling 802-879-7133 to schedule your appointment today.