Medicaid and Retirement Accounts: How IRAs and 401(k)s Are Treated for Long-Term Care Eligibility

Medicaid may count an IRA or 401(k) when someone applies for nursing-home or other long-term care, but there is no single national answer. Whether the account balance counts toward a state's asset limit depends on that state's current rules, and the answer can turn on whether the account is paying out regular distributions and whose name is on it.

Most people facing this question are sitting with a parent's or spouse's statements spread across the kitchen table: an IRA built over a working life, maybe a 401(k) from a past employer, and a care need that has arrived sooner than anyone planned. The worry is concrete. Will that money have to be used up before Medicaid helps, and what happens to the spouse who is still at home? This page walks through how the rules are built, from federal law down to the state, so the family can see which facts will matter.

Whether a Retirement Account Counts as an Asset for Medicaid

A countable asset (also called a countable resource) is any asset the state Medicaid agency includes when it measures whether an applicant's resources fall at or below the eligibility limit. Assets that are not counted are called exempt or excluded.

Medicaid for long-term care is needs-based, so an asset limit applies to the applicant. The federal eligibility policy page from the Centers for Medicare & Medicaid Services (CMS) explains that eligibility for people 65 and older, or who are blind or disabled, is generally determined using the income methodologies of the Supplemental Security Income (SSI) program, and that some states, known as 209(b) states, use certain more restrictive criteria. The dollar limit depends on the state's current rules. For California, see this site's page on California Medi-Cal asset limits.

The federal resource rules in 42 U.S.C. § 1382b list exclusions, including the home, household goods, personal effects and an automobile within limits, and burial spaces. Retirement accounts do not appear among those listed exclusions.

Two facts usually shape the answer in a given state. The first is whether the account is in payout status (defined in the next section) or simply sitting untouched. The second is whose account it is: different federal rules apply to the applicant's own account and to one belonging to the spouse who stays home, as the section on the community spouse below explains.

How States Differ: Countable, Exempt, and Payout-Status Rules

Payout status means the owner is eligible for periodic payments from the account, made at regular intervals such as monthly, rather than only having the option of a lump-sum withdrawal. Under the rules of the Supplemental Security Income (SSI) program, a retirement fund is a resource if its owner has the option of withdrawing a lump sum, even if the owner is not eligible for periodic payments; if the owner is eligible for periodic payments, the fund may not be a countable resource, and the periodic payments are unearned income.

Under the same SSI rules, the value of a retirement fund is the amount its owner can currently withdraw; an early-withdrawal penalty is subtracted, but taxes due are not. Whether a state's Medicaid program counts the balance of an account in payout status or treats it as exempt depends on that state's rules.

Where a state treats an account in payout status as exempt, "exempt" has a narrow meaning. The balance is not counted toward the asset limit, but each payment that comes out of the account is generally counted as the applicant's income. For a nursing-home resident, that income generally goes toward the cost of care after eligibility is set. The CMS spousal impoverishment page describes this post-eligibility calculation: the person's total income, less protected amounts such as a personal needs allowance of at least $30 and, where it applies, an allowance for a spouse at home.

This page describes the framework, not any one state's current rule. Whether a particular IRA counts, whether payout status changes that, and how often payments must arrive to qualify all depend on that state's current rules. Families holding identical accounts in different states can get different answers.

The Community Spouse's Retirement Accounts

A community spouse is the husband or wife who keeps living at home while the other spouse receives nursing-home or other institutional-level care. Federal spousal-impoverishment law, 42 U.S.C. § 1396r-5, sets the framework every state applies to that spouse's assets and income.

At application, the statute considers all resources held by either spouse, or both, to be available to the spouse needing care, "regardless of any State laws relating to community property or the division of marital property," except for the amount protected for the community spouse. So the at-home spouse's IRA starts in the picture unless the state's rules leave it out.

The protected amount is the Community Spouse Resource Allowance (CSRA): the share of the couple's combined countable assets the community spouse may keep. Under § 1396r-5(f)(2), it is built from the greatest of a minimum ($12,000 in the statute, adjusted over time, or a higher state figure), the lesser of half the couple's total resources or a maximum ($60,000 in the statute, adjusted), an amount set at a fair hearing, or an amount transferred under a court support order. Federally, the minimum and maximum adjust each January 1, and a state may set its own figure within that range, from the date its own page gives. The allowance is the amount, if any, by which that figure exceeds the resources otherwise available to the community spouse.

Whether a state leaves the community spouse's own retirement account out of this calculation depends on that state's current rules. Distributions from that account are generally the community spouse's own income, which affects how much of the institutionalized spouse's income can be set aside for the community spouse, up to the minimum monthly maintenance needs allowance (MMMNA). The April 27, 2026 CMS bulletin lists the federal MMMNA as $2,705.00 for all states except Alaska ($3,381.25) and Hawaii ($3,111.25), effective July 1, 2026; it adjusts each July 1.

Retirement Accounts and the Look-Back Period

The look-back period is the window Medicaid reviews for transfers made for less than fair market value. Under 42 U.S.C. § 1396p(c)(1)(B)(i), it is 60 months for transfers made on or after February 8, 2006, counted back from the date a person is both institutionalized and has applied. That is the federal rule; how a particular state applies its look-back depends on that state's current rules.

If an IRA is cashed out and the money is given to a child or sold to someone for less than it is worth inside that window, the transfer may lead to a penalty period: a stretch of time when Medicaid will not pay for institutional-level care. Under § 1396p(c)(1)(E), the number of months equals the total uncompensated value transferred divided by the average monthly cost to a private patient of nursing-facility care in the state (or, at the state's option, the community) at the time of application, and a state may not round down a partial month.

Timing matters most. Under § 1396p(c)(1)(D)(ii), the penalty starts on the later of two dates: the first day of a month during or after which assets were transferred for less than fair market value, or the date the person is eligible and would otherwise be receiving institutional-level care based on an approved application, but for the penalty. The start does not occur during any other period of ineligibility under that subsection. Because the later date is the one on which the person otherwise qualifies, a gift made four years ago and one made last month start their penalties under the same rule.

Withdrawing money and spending it on the owner's own legitimate needs, such as medical bills, housing or care, is not a transfer for less than fair market value. And under § 1396p(c)(2)(B)(i), a transfer to the applicant's spouse carries no transfer penalty.

For many families, this is the section that brings the most relief or the most worry, depending on what happened with the money in recent years. This site's page on Medicaid crisis planning covers the look-back in more depth.

Spend-Down, Conversion, and Other Planning Considerations

Spend-down means reducing countable assets to or below the state's asset limit by spending them. When retirement funds are withdrawn and spent in exchange for fair market value, even inside the look-back period, that spending is not a disposal of assets "for less than fair market value" under 42 U.S.C. § 1396p(c)(1)(A); a gift or a sale below market value can be. The Medicaid spend-down process has its own page on this site.

Some families consider converting a countable account into an income stream, often through an annuity. Federal law treats buying an annuity as a transfer for less than fair market value unless, under 42 U.S.C. § 1396p(c)(1)(F), the state is named remainder beneficiary in first position for at least the Medicaid paid, or in second position after a community spouse or a minor or disabled child (moving to first if that person disposes of the remainder for less than fair market value). Under § 1396p(c)(1)(G), for the transfer rules the term assets includes an annuity bought by or for an applicant for nursing facility or other long-term-care services unless the annuity is described in section 408(b) or (q) of the Internal Revenue Code, is purchased with proceeds from an account or trust described in section 408(a), (c) or (p), a simplified employee pension or a Roth IRA, or is irrevocable and nonassignable, actuarially sound and pays equal amounts during its term with no deferral and no balloon payments.

Irrevocable trusts also come up in Medicaid planning. Retirement accounts carry their own tax rules, including required minimum distributions and income in respect of a decedent, and those rules interact with trust planning in ways that call for careful legal and tax analysis. This page gives no tax advice.

No planning tool guarantees eligibility or protects a particular asset. What the rules allow depends on the specific facts, the state's current rules and the timing. An application must disclose a description of any interest the applicant or the community spouse has in an annuity (42 U.S.C. § 1396p(e)(1)).

Estate Recovery and Retirement Accounts After Death

Estate recovery is the process by which a state Medicaid agency seeks repayment from a deceased recipient's estate for long-term care costs Medicaid paid. Federal law, 42 U.S.C. § 1396p(b)(1), requires states to seek recovery from the estates of certain permanently institutionalized individuals and of individuals who were 55 or older when they received the assistance. The CMS estate recovery page explains that for people 55 or older, states must seek recovery for nursing facility services, home and community-based services, and related hospital and prescription drug services, and may choose to recover for other Medicaid services, except Medicare cost-sharing paid for Medicare Savings Program beneficiaries.

Under § 1396p(b)(2), recovery is delayed, not cancelled, while a surviving spouse, a child under 21, or a blind or disabled child of any age survives. States must also have procedures to waive recovery where it would cause undue hardship.

What counts as the "estate" depends on each state's rules. Some states limit recovery to assets passing through probate; others use a broader definition. The CMS State Medicaid Manual transmittal on estate recoveries notes that states may collect against an annuity if state probate law includes annuities, or if the state uses the expanded definition of estate.

Whether a particular state's recovery program can reach a retirement account that passes to a named beneficiary depends on that state's rules. Federal law lets a state include in the estate other assets in which the person had a legal interest at death, including assets conveyed to a survivor, heir or assign through joint tenancy, survivorship, a living trust or another arrangement (42 U.S.C. § 1396p(b)(4)(B)). This page describes the federal framework only.

If You'd Like to Talk Through Your Family's Situation

Retirement accounts sit at the point where Medicaid's asset rules, the spousal protections and the look-back meet, and small facts change how they apply: whether the account is paying out, whose name is on it, what was withdrawn and when, and which state's program applies. This page does not cover Medicare, private long-term-care insurance, veterans' benefits or tax questions. To request a consultation about your family's Medicaid and long-term-care options, use Medicaid Asset Protection Group. This site's page on what a Medicaid planning attorney does has more on the role of a Medicaid planning attorney.