Blogs from August, 2025

How Are Retirement Accounts Treated for Medicaid Long-Term Care Eligibility in New York?

If you or a loved one is considering applying for Medicaid to cover long-term care in New York—such as nursing home care or home care services—it’s essential to understand how retirement accounts (like IRAs and 401(k)s) are treated during the Medicaid eligibility process. These accounts can significantly impact whether you qualify, how much you may have to spend down, and what planning options are available.

Medicaid Basics: Income and Resource Rules

To qualify for Medicaid long-term care, applicants must meet strict income and asset limits. In 2025, an individual applying for Medicaid in New York can have $32,396 in countable assets. If they are applying for nursing home Medicaid coverage, they can only keep $50 of their monthly income. If they are applying for home care coverage, the income limit is $1,799.95 (some deductions and allowances apply, and further planning can be done to allow income above that limit to be preserved).

Retirement Accounts: Countable or Exempt?

Whether a retirement account is counted as a resource depends on whether the account is in “Pay Out Status.”

Payout Status means that the Medicaid applicant is receiving Required Minimum Distributions (RMDs) from the retirement account, paid in monthly payments.

The monthly payments are considered countable income by Medicaid.

This rule applies to retirement accounts such as:

• Traditional IRAs
• 401(k)s
• 403(b)s
• Other qualified plans

There are differences in the definition of “Payout Status” under IRS rules and Medicaid rules:

• Under IRS rules, a retirement account owner doesn’t have to take RMDs until they reach a certain age (73), but under Medicaid rules, regardless of your age, you would have to take the RMDs in order for Medicaid to exempt the principal amount of the retirement account.
• IRS only requires an annual payout, whereas Medicaid requires that the payments from the retirement account be made monthly.
• Even though a ROTH IRA, which is funded with post-tax income, doesn’t have to be put in payout status under the IRS rules, Medicaid would require that it be in “Payout Status” to be an exempt resource for Medicaid eligibility.
• The Department of Social Services uses its own life expectancy table, which could be shorter than the IRS table, which could result in the retirement account owner having to take a higher distribution amount under Medicaid rules to exempt the account as a Medicaid resource.

Example:
A 75-year-old applicant has a $200,000 IRA and takes the required annual distribution payable in monthly installments. The $200,000 principal is not counted toward the $32,396 asset limit. However, the monthly RMD amount (e.g., $1,000/month) is added to the applicant’s countable income.

If the retirement account was not in payout status, meaning the applicant is not receiving monthly distributions as per the life expectancy table, then the entire retirement account is treated as a countable asset.

Planning Strategies for Retirement Accounts

Before applying for Medicaid, if the applicant has not yet been taking RMDs, or the RMDs have not been distributed in monthly payments, the applicant should begin taking the payouts or restructure to monthly payments to exempt the account principal. This should be done before the Medicaid application is filed.

Don’t cash out and transfer the retirement account without a really good reason that would be advised by the experienced elder law attorney you are working with. Cashing out will trigger significant consequences, such as tax liability, loss of creditor protection, and loss of a source of exempt funds that could be tapped into in the event you needed more than your allowable resource limit. Therefore, you should never do that unless you have reviewed the repercussions with an elder law attorney and financial advisor, and it is still advisable for your unique situation.

Conclusion

Retirement accounts are not automatically qualifying or disqualifying for Medicaid—but how they’re handled can make or break eligibility. Getting the right legal advice early allows families to preserve assets and avoid costly mistakes.

If you’re planning ahead or facing an urgent Medicaid need, consulting an experienced New York elder law attorney is the most effective way to navigate retirement account issues and implement a tailored strategy.

Need Help?

We assist clients across Nassau County and the greater New York area with Medicaid planning, Medicaid asset protection, and long-term care planning. Contact us today to schedule a consultation and start planning with confidence.

What is the difference between a Durable Power of Attorney and a Non-Durable Power of Attorney?

A Power of Attorney is a document that allows someone to give authority to an individual that they choose to manage their legal and financial affairs on their behalf. The authority can be very specific to only certain transactions, standard to include the powers outlined in the statutory form, or it can be very broad and include provisions dealing with more complex matters such as trust planning, tax planning, and long-term care asset protection.

The key difference between a durable and non-durable power of attorney lies in what happens when the person who granted the power (the "principal") becomes incapacitated or mentally incompetent. A durable power of attorney remains in effect when the principal becomes incapacitated. A nondurable power of attorney is no longer in effect if the principal becomes incapacitated.

When signing a power of attorney for a limited transaction, such as representing you in the sale of real estate or assisting you with managing an investment, it is possible that you only want the individual to have authority while you have capacity and can call the shots. In this case, a “non-durable” power of attorney would serve your purpose. In the event you become incapacitated, your agent will no longer have authority to act on your behalf. 

However, if you are signing a power of attorney as part of your estate planning, to make sure that if you become incapacitated, the individual you appoint will have authority to act on your behalf, your power of attorney must be a “durable” power of attorney.

Durable Power of Attorney:

• Remains effective even if the principal becomes incapacitated or mentally incompetent
• Contains specific language stating it will survive the principal's incapacity (often called a "durability clause")
• Continues until the principal's death or until formally revoked while the principal is still competent
• Most commonly used for estate planning and long-term care planning purposes
• Essential for situations where someone may need ongoing financial or healthcare decision-making assistance

Non-Durable Power of Attorney:

• Automatically terminates if the principal becomes incapacitated or mentally incompetent
• Only remains valid while the principal maintains mental capacity
• Becomes void precisely when the principal would most need someone to act on their behalf
• Useful for specific, temporary situations when the principal is traveling or temporarily unavailable
• Not useful for long-term care planning or estate planning purposes

Practical Implications: The durability feature is crucial for estate planning because incapacity is often when families most need someone to manage financial affairs, make healthcare decisions, or handle legal matters. Without a durable power of attorney, families may need to go through expensive and time-consuming guardianship or conservatorship court proceedings to gain authority to act for an incapacitated loved one.

It is critical to note that even if your power of attorney is “durable,” it is still critical that your power of attorney include provisions that you may require in the future. A basic statutory power of attorney does not have provisions that would allow your agent to protect your assets or income in the event you needed Medicaid long-term care, or provisions that would allow your agent to perform tax planning to minimize estate taxes. You must be sure to consult with an elder law attorney to make sure that the necessary provisions are included to maximize the planning strategies that your agent may need to perform on your behalf in the event you become incapacitated and need long-term care.

For these reasons, it is important to seek the assistance of an elder law attorney to prepare a durable power of attorney for you as one of the foundational documents you will need for a comprehensive estate plan.

Contact us today at 516-466-WILL (9455) and we will be happy to help you with your estate plan.