23 Mar Mom needs a nursing home. Can we protect her IRA from Medicaid?

Q. My mother is going to have to go to a nursing home. She doesn’t have a lot of money except for a $550 month pension and maybe $50,000 in an IRA. Can we save the money in any way? She’s not yet on Medicaid.
— Trying to help

A. Medicaid has a lot of rules.

The rules are different for married couples and unmarried individuals who apply for benefits.

In general, an individual must have less than $2,000 in available resources to qualify for Medicaid benefits, said Christopher Olszak, an attorney with Davison Eastman Muñoz Paone in Toms River.

“While some states may exempt assets that are in an Individual Retirement Account (IRA), New Jersey does not and assets in an IRA are available to be used for the care of the individual that is in a nursing home,” he said.

Unless there is a spouse that is entitled to a portion of your mother’s income, she would eventually be required to contribute a majority of her monthly income — Social Security income and pension — to the nursing home to supplement what Medicaid will pay a facility, he said.

With limited exceptions, your mother cannot simply give away her IRA in order to qualify for Medicaid benefits, Olszak said.

But Medicaid provides for a few exceptions to the penalty rules, he said.

“Medicaid does not impose penalties on transfers of assets to a spouse or to a disabled child,” he said. “IRAs, however, are not assets that can be transferred from when the owner is alive, and generally would have to be cashed in before funds in the IRA can be given away.”

And because an IRA is a tax-deferred investment, cashing in the IRA can require the owner to pay income taxes as a result, he said.

But, if assets are transferred to beneficiaries that are not exempt from penalties, such as healthy children, grandchildren, or even charities, Medicaid has the right to impose a penalty for assets that are transferred in the five years prior to a Medicaid application, Olszak said.

“As of April 1, 2022, the Medicaid regulations provide that a transfer of $374.39 of an applicant’s assets equals a penalty of one day,” he said. “This number represents the average cost of one day of nursing home care in the State of New Jersey and is adjusted from time to time and varies from state to state.”

The actual cost for an applicant’s assisted living facility or skilled nursing facility could be higher or lower than $374.39 per day based on his or her actual needs, he said.

“Depending on your mother’s situation and the limited facts provided, she may not have sufficient funds to pay for five years of nursing home care if she were to liquidate the IRA and transfer the proceeds, unless she transfers to a spouse or disabled child,” he said.

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This story was originally published on March 23, 2023.

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