In a typical husband and wife situation, whereby one of the parties has entered a nursing home and needs to qualify for Medicaid benefits, what happens if the community spouse has an IRA account in excess of $104,400.00?
Unlike the states of California, Florida, Kentucky, Mississippi, New York, Pennsylvania, and Wisconsin, where a community spouse's IRA account may be a protected resource, in the other states the community spouse may not have any choice but to convert the excess IRA funds into an IRA Medicaid Compliant Annuity (“MCA”).
If the goal is to avoid income taxes on the amount involved in the transfer, the transfer must occur by way of a "Plan Administrator to Plan Administrator Transfer", or must be conducted by way of a “60 Day Rollover.” With the Plan Administrator Transfer, the typical time to complete the transaction is 4-6 weeks. With such a delay, it is likely that an additional month of private pay to the nursing home will be necessary. If time is of the essence, the better approach would be to proceed with the 60 Day Rollover, which can be completed in less than one week.
Once the IRA MCA is established, the community spouse will only recognize income taxes on the monthly distributions received in a respective calendar year.
