Can an IRA With Beneficiaries Be Claimed by Medicaid?

You can protect your IRA from Medicaid's clutches.

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Navigating through your state’s Medicaid rules can be a daunting task. Medicaid provides payments for medical and nursing care assistance to people with few assets. Most states require you to spend down all but $2,000 of your money to qualify for Medicaid. Your individual retirement account figures into your ability to qualify.

Medicaid Spend-Down

Medicaid spend-down rules depend on where you live. Some states follow federal guidelines, while others impose stricter rules. When determining your Medicaid eligibility, a state distinguishes between countable and non-countable assets. You must spend down your countable assets to the state’s threshold amount. Your home, one car and household furnishings are non-countable. You can spend down you countable assets, such as you savings account, by paying bills, transferring money to your disabled child and purchasing non-countable assets. Your IRA is a countable asset unless you turn it into an annuity.

IRA Annuity

A state can’t claim your IRA to pay for Medicaid, whether or not you have beneficiaries, but normally, the state requires you to spend down your IRA assets before receiving Medicaid. However, your IRA becomes non-countable if you turn it into an annuity. Do this by taking substantially equal periodic payments. You can take these payments before age 59 1/2 without triggering the 10 percent penalty on early withdrawals. You can purchase a qualified annuity contract within your IRA to achieve the desired effect. When you convert your IRA to an annuity, the balance disappears and is replaced by a stream of payments that continue for a set period or for the remainder of your life. Medicaid does count your annual IRA annuity distributions when determining your eligibility.


You do not have to name your state as the beneficiary of your IRA, whether or not you turn it into an annuity. Some folks are confused by regulations in certain states that require you make the state a beneficiary to an immediate-pay annuity. These rules apply to non-qualified annuities, not ones residing within IRAs. You can name your spouse, children or whoever you wish as your IRA beneficiary. However, if you live in a community property state, your spouse has claim to your IRA unless the right is waived.


A spouse’s IRA is a non-countable asset. Your spouse doesn't have to spend down her IRA to have Medicaid pay for your long-term care coverage. Half of the assets you share with your spouse are non-countable up to set limit. As of 2013, this limit is $115,920, although some states set lower limits. The lowest allowable limit is $23,184. Your spouse can receive up to $2,898 a month of your income without affecting your Medicaid eligibility. Once again, the monthly allowance varies by state, but the minimum for the year beginning July 1, 2012 was $1,891.25.