Retirement Accounts (IRAs, 401(k)s and Pensions)

For many families, a retirement account is their largest savings after the home. How Long-Term Care Medicaid treats an IRA, 401(k) or pension can decide whether someone qualifies and how much may need to be spent. There is no single national rule. Each state decides, and the answer often depends on the type of account, whether it is paying out, and whether it belongs to the applicant or the spouse at home. This guide explains the common approaches.

Figures change periodically. Double-check current amounts before relying on them.

Why retirement accounts are treated differently by state

Federal law lets states set many details of their Long-Term Care Medicaid asset rules. As a result, retirement accounts are generally handled in one of three ways:

Countable. The account is treated like a savings account. Its value (sometimes after taxes and early-withdrawal penalties) counts toward the asset limit.
Exempt if in payout status. If the owner is taking regular, periodic payments (for example, required minimum distributions), the account balance is not counted. The payments count as income instead.
Exempt. A few states exempt retirement accounts for some or all applicants.

Many states also treat the spouse at home’s retirement account more generously than the applicant’s, sometimes exempting it entirely.

Because of these differences, the same IRA can be fully countable in one state and exempt in the next. Each state guide explains its asset rules.

Asset or income: the key distinction

A retirement account can affect Medicaid in two ways:

As an asset: the balance counts toward the limit (often $2,000 for a single applicant).
As income: the monthly or yearly payments count toward the income limit (in many states, $2,982 a month in 2026), and after approval, toward the person’s monthly payment to the nursing home.

When a state exempts an account in payout status, it is moving the account from the “asset” side to the “income” side. That can help with the asset limit, but the payments still count as income.

Types of retirement income and accounts

Pensions

A pension paid as a monthly benefit is income, not an asset. It counts toward the income limit and, after approval, goes toward the cost of care (after allowances). If the pension offers a lump sum and the person takes it, the lump sum becomes an asset once received.

Traditional IRAs and 401(k)s

These are the accounts most affected by state differences. If counted as an asset, the state usually looks at what the person could withdraw. Some states subtract taxes and early-withdrawal penalties; others count the full balance.

Required minimum distributions generally begin at age 73 under current federal tax law. A person old enough to take RMDs may be able to put the account in payout status by setting up regular withdrawals.

Roth IRAs

Roth IRAs have no required minimum distributions for the owner. In states that count retirement accounts, Roth balances are usually counted. In states that exempt accounts in payout status, a Roth may need regular withdrawals set up to qualify.

Employer plans still at work

If the account is in a current employer’s plan and cannot be withdrawn until the person leaves the job, some states treat it as unavailable. Once the person can withdraw it, it may count.

Retirement accounts and married couples

When one spouse applies, the state adds up the countable assets of both spouses. Depending on the state:

the spouse at home’s retirement account may be counted as part of the couple’s total; or
the spouse at home’s retirement account may be exempt.

If counted, it becomes part of the snapshot used to figure the Community Spouse Resource Allowance (CSRA), $32,532 to $162,660 under the 2026 federal standards. In 50-percent states, a large IRA can raise the spouse at home’s allowance; in all states, it can raise the amount that needs to be spent down for the applicant.

Retirement accounts cannot be transferred between spouses the way a bank account can. Moving money out of an IRA usually means withdrawing it, which can create income tax. Families should understand the tax effect before making changes.

Options people use with retirement accounts

These are common approaches, described in general terms. Whether any of them fits depends on the state and the family’s situation.

Putting the account in payout status. In states that exempt accounts in payout, setting up regular withdrawals can take the balance off the asset side. Watch the income limit.
Withdrawing and spending down. Withdrawing funds (and paying the tax) to pay for care or buy exempt items. Withdrawals may be spread over tax years to lower the tax bill, if time allows.
Converting to an income stream. Some families use the funds to buy an annuity that meets Medicaid’s rules. See Medicaid-compliant annuities.
Using the spouse at home’s protections. In states that exempt the spouse’s account, or allow a high CSRA, a large part of the couple’s retirement savings may be protected.

Each of these has tax, income and timing effects. Mistakes can mean losing savings to taxes or care costs that could have been avoided, or creating a look-back problem. Working with a Certified Medicaid Planner (CMP), along with a tax professional, is strongly encouraged before touching a retirement account.

Worked example

Frank, 80, is single and lives in a state that counts IRAs as assets. He has $1,500 in checking and an IRA worth $60,000. His countable assets are about $61,500, well over his state’s $2,000 limit. To qualify, he would need to spend down about $59,500, for example by withdrawing from the IRA to pay for his care and buy exempt items. The withdrawals are taxable income, so the family plans the withdrawals and the tax payments together.

If Frank lived in a state that exempts IRAs in payout status, and he were taking regular distributions, the $60,000 balance might not count. His monthly distributions would count as income instead.

Records to gather

The most recent statements for every retirement account, and often 60 months of statements for the look-back.
A statement of the current withdrawal value, including any surrender charges or penalties.
Proof of the distribution schedule, if the account is in payout status.
Pension award letters showing monthly gross amounts.

Common questions

Do I have to cash out my IRA to qualify? Not always. It depends on your state’s rule and your situation. In some states, putting the account in payout status is enough; in others, the balance counts.

Will withdrawing from my IRA cause a look-back penalty? No, withdrawing your own money is not a gift. What you do with it afterward matters. Spending it on your own care and needs is fine; giving it away is not.

What happens to my IRA after I die? It passes to the named beneficiary. In some states, accounts that pass outside probate can still be reached by estate recovery.

Questions to answer before deciding anything

Before changing a retirement account, it helps to know:

How does my state treat the applicant’s account? Countable, exempt, or exempt only in payout?
How does my state treat the spouse at home’s account?
What are the tax consequences of withdrawing some or all of the balance this year or over several years?
Would putting the account into payout raise my income above the limit, especially in a state with a $2,982 cap?
What would the payments do to my patient liability after approval?
Is there a surrender charge or penalty for early withdrawal?

The answers can point toward very different choices for two families with the same balance.

Retirement accounts and the look-back

Withdrawing money from your own retirement account is not a transfer. But:

giving the withdrawn money to someone else is a gift;
changing the beneficiary is not a transfer during life, but the account may be reachable by estate recovery in some states;
rolling an account into an annuity must meet Medicaid’s annuity rules, or the purchase itself can be treated as a transfer.

Keeping track after approval

If a retirement account is exempt because it is in payout status, the state will usually want to see that payments continue on schedule. If payments stop, or the person takes a large extra withdrawal, the account may become countable or the extra money may push the person over the asset limit. Keep statements and report changes.

Questions to answer before deciding what to do

Before cashing out or changing a retirement account, it helps to answer a few questions:

Whose account is it? The rules can differ for the applicant’s account and the spouse’s account.
Is it already paying out? Some states treat an account in regular payout status differently from one that is untouched.
What would the taxes be? Cashing out an IRA or 401(k) creates taxable income. The tax bill reduces what is left to spend down.
Is there a penalty? Withdrawals before age 59½ may face an extra federal tax penalty, with some exceptions.

A Certified Medicaid Planner (CMP) can weigh these points against the state’s rule.

Last updated for 2026. General information only, not legal or financial advice. Medicaid Answers is a free educational resource published by Medicaid Answers Foundation.