Can Tax Payments be Part of Medicaid Spend Down?

 In Long-Term Care Planning

Question:

When a husband is about to apply for Medicaid long-term care benefits, and a community-spouse (non-applicant) wife is trying to reduce her assets below the limit of about $128,000, what do you think of using assets to pay the tax that results from converting a traditional IRA to a Roth?

Photo by Sharon McCutcheon on Unsplash

Response:

That sounds like a good idea. The taxes would certainly be a fair debt to pay. While individuals over age 50 are limited to putting just $7,000 of their income into a Roth IRA each year, there’s no limit on traditional IRA to Roth conversions. So the community spouse could convert her IRAs to a Roth, prepaying the tax that will be due because of the IRA withdrawal. The Roth can continue to grow tax-free. I’ll leave it to financial advisors to counsel on whether investing in a Roth is better than another kind of investment.

This technique, unfortunately, does not solve the other problem we often seen in Medicaid spend downs where it’s the nursing home spouse who owns the IRA, since he has to spend his own money down below $2,000. He’ll have to liquidate the IRA and pay the tax without the opportunity of converting it to a Roth, since the Roth would still have to be in his name.

Related Articles:

How Can I Protect My IRA from a Medicaid Spend Down if I Go to a Nursing Home?

Spending Down for Medicaid Eligibility

Can Community Spouse Keep Proceeds of Sale of Home?

How the Community Spouse Can Keep More Assets

Medicaid Income Rules and Spousal Protections for Nursing Home Residents

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