Number One Provider of Medicaid Compliant Annuities

Medicaid 2009 - RMD Distributions Suspended

On December 23, 2008, President Bush signed into law the Worker, Retiree, and Employer Recovery Act of 2008 (the "Act"). The Act provides relief to plan participants and pension plan sponsors impacted by the current economic crisis by suspending the requirement to receive minimum distributions for 2009.  It also provides limited relief from the defined benefit plan funding rules enacted by the Pension Protection Act of 2006 for both single-employer defined benefit pension plans and multi-employer plans.

Some of the significant aspects of the relief are as follows:

• No minimum distribution is required for calendar year 2009 from employer-provided qualified retirement plans and IRAs.  The suspension is for one year.  The 2010 minimum distribution is still required.

• The relief applies only to the minimum distributions for 2009.  A participant whose first distribution year is 2008 (i.e., he attains age 70 and 1/2 in 2008) and who would normally receive his first minimum distribution for 2008 by April 1, 2009, must still receive that initial minimum distribution.  A participant whose first distribution year is 2009 (i.e., he attains age 70 and 1/2 in 2009) and who would normally receive his first minimum distribution for 2009 by April 1, 2010, is not required to receive that distribution.  However, no relief is provided for the required minimum distribution for 2010 and that distribution must still be made no later than December 21, 2010...

With an RMD not required to be taken in 2009, what will be the impact of the new law in those states which treat an IRA account as a noncountable resource for Medicaid purposes if monthly RMD distributions are taken?  If the new law is followed, will the IRA account suddenly be recharacterized as a countable resource?  Is the better course of action to continue with the monthly RMD distributions?

To review a comprehensive article published by Pillsbury Winthrop Shaw Pittman LLP on the Worker, Retiree, and Employer Recovery Act of 2008, please click here.

Countable IRA Accounts and Medicaid

Recently in Texas, I worked with an elder law attorney who had a Medicaid case involving a community spouse who had a very large IRA account. With the IRA account being unprotected - a countable resource, and subject to a Medicaid spend-down, I instructed the community spouse to purchase an IRA Medicaid Compliant Annuity ("MCA") with an annual pay-out, rather than a monthly pay-out. In Texas, an MCA with annual pay-out is an acceptable annuitization. 

When the community spouse received his first annual payment from the IRA MCA, I instructed him to immediately roll the entire payment back into a traditional IRA account. The advantages of the plan were that he qualified his wife for Texas Medicaid benefits, and he avoided having to pay income taxes on the entire payment amount. 

Note: With the way the plan was orchestrated, it met the 60 day roll-over rule requirement, as well as the one roll-over per year rule.  Additionally, by the end of the year, he was able to meet his required minimum distribution amount.

Converting an IRA Account into a IRA Medicaid Compliant Annuity

In a typical husband and wife situation, whereby one of the parties has entered a nursing home and needs to qualify for Medicaid benefits, what happens if the community spouse has an IRA account in excess of $104,400.00? 

Unlike the states of California, Florida, Kentucky, Mississippi, New York, Pennsylvania, and Wisconsin, where a community spouse's IRA account may be a protected resource, in the other states the community spouse may not have any choice but to convert the excess IRA funds into an IRA Medicaid Compliant Annuity ("MCA"). 

If the goal is to avoid income taxes on the amount involved in the transfer, the transfer must occur by way of a "Plan Administrator to Plan Administrator Transfer", or must be conducted by way of a "60 Day Rollover."  With the Plan Administrator Transfer, the typical time to complete the transaction is 4-6 weeks.  With such a delay, it is likely that an additional month of private pay to the nursing home will be necessary.  If time is of the essence, the better approach would be to proceed with the 60 Day Rollover, which can be completed in less than one week. 

Once the IRA MCA is established, the community spouse will only recognize income taxes on the monthly distributions received in a respective calendar year.