Failure to Maximize an IRA

Question: My mother applied for Chronic Care Medicaid to cover her stay in a nursing home facility. At the time of her application she had an individual retirement account (IRA) in the amount of $11,000.00 and $2,000.00 in her bank account. I was informed that the resource allowance for Medicaid is $15,900.00 (2021). However, my mother was denied Medicaid for failure to “maximize” her IRA. What does this mean and was the Department of Social Services correct in its determination to deny Medicaid?

Answer: The general rule with retirement accounts with regard to Medicaid eligibility is that the Department of Social Services will not consider the value of an IRA, or any other qualified fund, if the applicant is taking monthly distributions from same according to Department of Social Services’ life expectancy chart. Department of Social Services refers to taking distributions as “maximizing” the IRA. It is important to note that maximizing the IRA is not the same as taking minimum required distributions. For instance, the applicant must take distributions regardless of their age. Typically the IRS does not require IRA holders to start taking distributions until they reach the age of 72. The distributions must be taken monthly, not in one lump sum. Most notably, the Department of Social Services may not use the same life expectancy chart as the IRS which means that the distribution will be larger than normally required.

Most applicants do maximize their retirement funds in an effort to have the value of the account disregarded from their resource allowance. This would mean that a person could have an IRA worth $500,000.00, but so long as they have maximized same, the value will not be counted as part of the $15,900.00 they are permitted to keep. However, your mother’s case is quite different. The argument against the Department of Social Services denial is that maximization should not be required because her assets themselves, including the full value of her IRA, do not exceed the resource allowance of $15,900.00.

This issue was just brought before the Supreme Court in an Article 78 proceeding, whereby an applicant challenged the Department of Social Services in his denial of Medicaid for failing to maximize his IRA, despite his assets being less than the resource allowance. The Department of Social Services argued that regardless of the applicant’s assets, maximizing his IRA was a requirement for Medicaid eligibility. The Court found in favor of the applicant noting that failure to maximize an IRA is not a condition of Medicaid eligibility when the IRA and other assets are less than the resource amount.

As this recent court decision demonstrates, rules for Medicaid eligibility are extremely technical. Contact an Elder Law attorney in your area for more information on the best way to rectify your situation.

Nancy Burner, Esq. 

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Burner Law Group, P.C.

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