My Mother Has $260k in an IRA. Is a Nursing Home Able to Take It?

A nursing home cannot directly seize funds held in an individual retirement account (IRA). However, retirement accounts in many states are generally treated as countable assets for Medicaid eligibility, which means their value can affect whether you qualify for Medicaid coverage of long-term care. In many cases, this requires a “spend-down,” where IRA funds are withdrawn and used to pay for nursing home or other care costs until assets fall below state limits. Asset transfers, such as gifting money to others, are treated differently and can trigger Medicaid penalty periods unless done well in advance. Because Medicaid rules for IRAs, income and exemptions vary by state, eligibility depends on local regulations and personal circumstances. To show how this works, let’s consider the example of a mother with $260,000 in an IRA, and the options you may have to help limit nursing home costs while working toward Medicaid eligibility.

A financial advisor can help review your assets, model Medicaid eligibility scenarios and work alongside legal and tax professionals.

What to Know About IRAs and Nursing Homes

Unlike Medicare, the other major federal government health insurance program, Medicaid will pay for the costs of long-term care, including nursing homes. However, before Medicaid will cover health costs, recipients have to meet the program’s financial eligibility requirements.

The requirements vary from state to state, but include thresholds for income and assets. In some states, IRAs may not be considered part of a Medicaid applicant’s assets if they are in payout or withdrawal status. In most states, however, IRA assets will be included in the eligibility assessment.

If IRA assets are included, an applicant will have to spend the funds in the account until the Medicaid eligibility threshold is reached. For younger applicants, this may mean taking withdrawals even though penalties or taxes apply.

Once the applicant’s assets have reached the low Medicaid thresholds, the program will pay some or all of the costs of long-term care.

In addition to spending down IRA assets, there are some other ways to reduce wealth for Medicaid eligibility requirements. An applicant may be able to gift money to relatives, use funds to purchase a Medicaid annuity or place assets into a Medicaid Asset Protection Trust (MAPT).

Since home equity may not be considered as an asset for eligibility purposes, funds could be used to pay down a mortgage. Money could also go to pay for wheelchair ramps, widened doorways and other home improvements that could allow someone to age in in place in their own home rather than going to a nursing home or assisted living facility.

While all these methods can reduce wealth to enable Medicaid eligibility, each has drawbacks and limits. Money given away, paid out for an annuity or placed in a trust is no longer controlled by the owner, for example. And due to the five-year lookback rule, reducing wealth with these moves generally must be done five years before the Medicaid application in order to be fully effective.

IRA Protection Step-By-Step

Your mother’s $260,000 can’t be seized directly by a nursing home. However, depending on the rules in the state where she lives, she may have to spend nearly all the money in the account in order to meet Medicaid financial eligibility rules.

Much depends on details, however, and there is also much you may be able to do to protect your mother’s IRA. Here’s a step-by-step process for that goal:

• Start by familiarizing yourself with the rules on Medicaid eligibility in your state. These vary widely, because Medicaid is federally funded but state administered, and a strategy that is effective in one state may be less effective or even irrelevant in another. For example, some states treat IRAs as countable assets unless they are in payout status, while others apply different exemptions.
• Assess your mother’s age, health, additional financial resources and other aspects of her situation. Marital status also matters, as community spouse protections may allow a spouse to retain a higher level of assets. For example, one factor is whether it is important for her to leave a financial bequest as part of her estate. If it is, she may want to do more to preserve her retirement account. If not, it may make more sense to legally spend down the account to pay for her care until she qualifies for Medicaid assistance.
• Design a program to protect the IRA assets (based on the results of the first two steps). This may include permissible spend-down strategies, gifting to family members, subject to penalty rules, creating and funding an irrevocable trust, purchasing a Medicaid-compliant annuity or otherwise reducing or converting assets into types that won’t be considered when assessing wealth for Medicaid purposes. Any strategy must comply with state-specific definitions of countable assets and income.
• Put the selected strategies into action. For example, set up the necessary trusts and transfer property into them, or arrange to make gifts to family members. Remember the five-year (60-month) lookback rule. Transfers for less than fair market value during this period can trigger a penalty period of Medicaid ineligibility. This aspect of Medicaid planning is one reason it’s imperative to plan well ahead of need.

Once you have evaluated the rules and regulations and crafted and implemented a Medicaid eligibility plan, you can feel confident your mother will get the care she needs while limiting unnecessary asset depletion under applicable Medicaid rules.

Tips for Maximizing IRA Protection

People often worry about protecting an IRA from nursing home costs. The general plan broken in the section above offers a basic outline. A more comprehensive strategy may include long-term care insurance, which can help pay for nursing home or in-home care. This type of insurance can be expensive and is usually purchased earlier in life.

It is also important to note that needing long-term care is not guaranteed. While studies often say that nearly 70% of people will need some form of long-term care at some point, that care does not always take place in a nursing home or another facility ¹ .

In fact, much long-term care is provided by family members or friends at home. According to the U.S. Bureau of Labor Statistics, about 14% of Americans age 15 and older provided unpaid care to someone age 65 or older in 2023–2024 ² . The share was higher among people in midlife, including about 18.8% of those ages 45 to 54 and 24.1% of those ages 55 to 64 ³ .

Planning for long-term care does not follow a single path. Needs, family circumstances, and state Medicaid rules can vary widely. With that in mind, here are five general tips for maximizing IRA protection when preparing for potential long-term care costs:

• Consider professional guidance from an elder law attorney or Medicaid planner familiar with state rules.
• Review how your state treats IRAs for Medicaid eligibility, including whether accounts in payout status are counted as assets.
• Track required minimum distributions and withdrawals, since income levels can affect eligibility even if the IRA itself is excluded.
• Identify allowable spend-down expenses, such as medical costs, home repairs, or debt payments.
• Be cautious with gifts, because transfers made within five years of applying for Medicaid can delay eligibility.

Bottom Line

While a nursing home can’t directly take an IRA from someone who needs long-term care, a nursing home patient may need to spend all or part of their IRA funds for care before Medicaid starts helping out. Several strategies may be able to preserve a patient’s wealth while meeting these eligibility requirements, but attention to local regulations and long-term planning are important.

Retirement Planning Tips

• A financial advisor can help you estimate healthcare expenses in retirement, compare possible care scenarios, and assess how IRA withdrawals may affect overall savings and eligibility rules. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Mandatory distributions from a tax-deferred retirement account can complicate your post-retirement tax planning. Use SmartAsset’s RMD calculator to see how much your required minimum distributions will be.

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