The Elder Law Minute TM
The Effect of a Spouse’s 401(k) on Medicaid Eligibility and Recovery
By Ronald A. Fatoulah, Esq.
elder law
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Medicaid is a jointly funded, Federal
and New York State program which offers
broad medical services to individuals who
are blind, aged (over 65), or disabled.
Medicaid also has a program for low-income
individuals, but this article will focus
on Medicaid for the blind, aged and disabled.
In New York, an applicant can own
up to $15,150 in non-exempt assets to
qualify for Medicaid. An applicant’s spouse
can own up to $74,820 in non-exempt
assets, or one-half of the couple’s assets,
up to a maximum of $123,600 (called the
Community Spouse Resource Allowance).
Any amount in excess of the Community
Spouse Resource Allowance may be subject
to recovery by Medicaid for the applicant’s
care. A question that often arises in connection
with Medicaid planning for one spouse
is whether a non-applicant spouse’s 401(k)
account is considered an asset for purposes
of determining an applicant’s eligibility for
Medicaid and whether the non-applicant’s
401(k) is subject to recovery by Medicaid.
The answer, as will be seen, is that it depends
on the status of the 401(k).
A 401(k) account is a type of employer
sponsored retirement account. It is similar
to a traditional retirement account (IRA) in
that individuals can invest pre-tax dollars
to promote the growth of the retirement
account faster, since individuals are able to
contribute more of their income. The taxes
are paid at the time the retiree withdraws
funds from the retirement account. Also,
similar to a traditional retirement account,
a retiree may begin withdrawing from the
401(k) at the age of 59 without penalty, but
must start withdrawing at the age of 70 ½
(with few exceptions). When a retiree starts
taking withdrawals from a 401(k) account,
the account converts to what is called “payout
status”, and it is this conversion that
determines whether or not Medicaid considers
the retirement account as an asset for
purposes of qualifying. In other words, if a
non-applicant spouse’s 401(k) account is in
payout status, the account is not considered
as an available asset for the applicant’s eligibility
for Medicaid. It is exempt. In addition,
when the 401(k) account is in payout status,
the amount in excess of the Community
Spouse Resource Allowance ($123,600) is
not subject to recovery by Medicaid to pay
for the applicant’s medical expenses.
An example may help illustrate the difference
of a non-applicant spouse’s 401(k)
on the applicant’s eligibility for Medicaid
and the possibility of recovery by Medicaid
against the 401(k) when it is in non-payout
status versus payout status. If, for example,
an applicant’s spouse has a 401(k) in
the amount of $500,000 that is in non-payout
status, the 401(k) may be considered
an asset and the amount in excess of the
Community Spouse Resource Allowance
may be subject to recovery by Medicaid. In
contrast, if the same applicant’s spouse has
a 401(k) in the amount of $500,000 that is
in payout status, the 401(k) is not considered
an asset for determining an applicant’s
eligibility for Medicaid. Further, in the latter
example, the 401(k) is not subject to
recovery by Medicaid.
As shown, the status of a non-applicant’s
401(k)—payout versus non-payout
status—can have a tremendous impact on
an individual’s Medicaid plan. It should
also be noted that even though a non-applicant
spouse’s 401(k) may be in payout
status, and thereby protected, the income
derived from the 401(k) also plays a critical
role in an applicant’s Medicaid plan.
The rules governing Medicaid are highly
complex. The failure to implement a proper
Medicaid plan may have an effect on
an applicant’s eligibility for Medicaid and
potentially expose assets to a Medicaid
recovery. It is therefore important to consult
an experienced elder law attorney
when planning for Medicaid.
Ronald A. Fatoullah, Esq. is the principal
of Ronald Fatoullah & Associates,
a law firm that concentrates in elder
law, estate planning, Medicaid planning,
guardianships, estate administration,
trusts, wills, and real estate. The author
would like to thank Jeffrey P. Gorak, Esq.
for his contribution to this article. The law
firm can be reached at 718-261-1700, 516-
466-4422, or toll free at 1-877-ELDERLAW
or 1-877-ESTATES. Mr. Fatoullah
is also a partner with Advice Period, a
wealth management firm, and he can be
reached at 424-256-7273.
ROnald Fatoulah
ESQ, CELA*
/www.qns.com