How Can I Save My IRA from Long-Term Care Costs?
If I were to need long term care, how could I protect my $800,000 traditional IRA from Medicaid and pass it on to my heirs?
That is very difficult because you can’t transfer the funds to an irrevocable trust without liquidating the funds and paying taxes on them, a high certain cost to protect against an uncertain one. You may want to look into long-term care insurance or life insurance unless your age and medical condition make these either unavailable or too costly. In some cases, when the need for long-term care is certain or likely but some years away, we recommend accelerating IRA withdrawals to pay the taxes at a lower rate than what would be charged if $800,000 were withdrawn all at once. For instance, you could withdraw $80,000 a year for 10 years, and set aside the amount withdrawn over three years in trust while leaving the rest for your future living and care costs.
Depending on the month you start this process, you wouldn’t have to wait a full three years to complete it, since you could withdraw the final amount in January of the third year. For instance, if you withdrew $80,000 in June 2018, another $80,000 in January 2019, and the final amount in January 2020, the process would take two and half years.