Planning for Your Long-Term Care Needs
Many people rely on Medicaid to cover the rising costs of nursing homes and other forms of long-term care. The other main method of planning is to purchase long-term care insurance. Whichever method you choose, it is important to develop a plan for your long-term care needs. Ohio is one of the few states that considers retirement accounts accessible as countable resources for Medicaid. This means you may be required to spend down your retirement account income and other assets before you can qualify for assistance from Medicaid. Planning for your long-term care needs is crucial to protect what you have spent years saving for retirement. Without careful planning for your long-term care needs, you could find yourself using your life savings to pay for nursing home bills.
Qualifying for Medicaid to Cover Long Term Care Expenses
In Ohio, the cost of nursing home care easily exceeds $200 per day. Most families cannot afford to pay out-of-pocket such a large amount for long term care. This leaves families with few options. To qualify for Medicaid, you cannot have enough income to cover your medical expenses. Also, you cannot have more than $2,000 ($3,000, if married and both spouses are applying) in additional assets. Certain assets, such as your home (up to a certain limit) and car may be exempt. However, unlike most states, accessible retirement accounts in Ohio are not exempt. Most retirement accounts, for example IRAs, 401(k)s, and SEPs, are considered accessible retirement accounts.
If your assets (and/or income) are above the allowed amount, you will need to spend your accounts down to qualify for Medicaid assistance. If one spouse is staying in the home, you may need to only spend down half of your assets, as the other half will go for the care of the spouse staying in the home under the Community Spouse Resource Allowance (CSRA). This means, if you have not planned properly, you could find yourself paying tens of thousands of dollars to the nursing home before qualifying for Medicaid. Also, it could mean using thousands of dollars for long term care that you intended to go for the care of your spouse or family.
Retirement Accounts and Qualifying for Medicaid in Ohio
In Ohio, accessible retirement accounts are countable resources for Medicaid. This means money you saved intending it to be for your retirement or to leave for the care of your family may need to be spent down before you qualify for assistance from Medicaid to pay the cost of a nursing home.
Example. Henry and Cora, in their 70s, had saved $200,000 for retirement. Henry needed to enter a nursing home for more specialized care, while Cora stayed at home.
Under the Community Spouse Resource Allowance, Cora was able to keep $100,000 ($200,000 x 50% = $100,000) of the retirement account for her expenses. However, Henry had to spend down the other 50% or $100,000, before he qualified for assistance from Medicaid to cover his nursing home expenses.
With careful planning, you have options. By planning for long term care expenses and tax consequences, one option that would have potentially saved Henry and Cora thousands is if they had purchased long term care insurance. Long term care insurance is expensive and not everyone sees the benefit of insuring the unknown future. Another option for people, who are relying on Medicaid to pick up nursing home costs rather than long term care insurance, is to consider taking withdrawals from their retirement accounts after they turn 59½ years old. This helps them avoid the 10% tax penalty for early withdrawal, while allowing them to move the money to an irrevocable trust. The look back period for qualifying for Medicaid is five years. This means that after five years the contributions to the irrevocable trust will no longer be countable towards qualifying for Medicaid assistance. This is just one example of how with some careful planning Henry and Cora could have saved thousands.
The Bottom Line
You have options. Don’t delay and be caught unexpectedly unaware! Planning for long-term care can save you tens of thousands of dollars that you can use to support your loved ones and continue your legacy, rather than paying the money for nursing home care.
Contact the tax professionals at Gudorf Tax Group to schedule an appointment to discuss planning for your long term care needs, so you can feel confident that you will be prepared for your long-term care needs, if and when the time arises.