Retirement Funds Are a "Countable Resource."
The Georgia Medicaid manual rules indicate that certain retirement funds can be treated as income and as a "countable resource" or an asset. For IRAs and Roth IRA's the value of the fund is treated as a resource available to the person receiving Medicaid (hereinafter "Recipient").
How Assets Are Counted.
If the Recipient is under age 59 1/2 , then any withdrawals are subject to a 10% penalty under the rules set forth by the Internal Revenue Code. Medicaid does take this penalty into account. Therefore for Recipients under age 59.5, ninety (90%) percent of the retirement plan account value is treated as a resource. For a Recipient over 59.5, the value in the IRA or Roth IRA is counted 100% as a resource. The fact that income taxes would be owed on a traditional IRA is not taken into account for purposes of Georgia Medicaid eligibility.
Should I Participate? What if My Company Matches My Contributions?
Creating or funding an IRA may cause a Recipient to lose Medicaid benefits because of the asset test for SSI and Medicaid eligibility. Because the resource/asset limits are so low, even a small amount in an IRA could cause problems because the asset would grow (if invested) over time. Because some employers match contributions to a retirement plan such as a 401(k), the Participant may actually be losing out on money he or she might otherwise be able to obtain if he or she contributed to the retirement plan. However, this contribution match likely pales in comparison to amounts received through SSI payments. Even though some money may be "left on the table," it may be wise not to participate in the employer sponsored 401(k).
A Possible Trap.
If the Recipient must terminate employment in order to receive payment from the fund, that asset "is not a countable resource." Medicaid Manual section 2332. Some retirement plans might fall into this category. Even if the Recipient could participate in such a plan, I would not take the risk of funding such a retirement plan. For example, if the Recipient were fired from his/her job, he/she would then be able to withdraw the funds from the 401(k), so then the asset would be counted for purposes of determining Medicaid eligibility and the Recipient will have lost not only his or her job, but also SSI benefits. This is likely not a risk worth taking.
What if I Have Already Funded A Plan?
If you currently receive SSI and have funded a retirement plan such as a 401(k) or IRA, seek legal counsel with regard to how best to approach the retirement asset based on your particular situation and how you currently qualifies for Medicaid and/or SSI. One option might be to move the assets into a Special Needs Trust (of the type allowed for in 42 U.S.C. ?1396(d)(4)(A) -- the kind often called "self-settled trust" which is subject to Medicaid estate /trust recovery). A skilled legal advisor can assist you with what steps to take based on your individual circumstances.
What Should I Do With the Money If Not Fund a Retirement Plan?
Having a Recipient establish a retirement plan (e.g. 401(k), 403(b), IRA, SEP IRA, Roth IRA, Keogh, etc.) is probably not a good idea. The Recipient should probably consider (i) placing any excess funds earned by the Recipient in a self-settled special needs trust or (ii) using the money in another way that will not compromise Medicaid eligibility.