Medicaid and Annuities
From: Jackson
What is an annuity?
Annuities are long-term, tax-deferred vehicles designed for retirement. Variable annuities involve investment risks and may lose value. Earnings are taxable as ordinary income when distributed. Individuals may be subject to a 10% additional tax for withdrawals before age 59½ unless an exception to the tax is met. Optional living and death benefits, if available, involve additional cost and may be subject to limitations and conditions.
Basic Medicaid rules
When a couple applies for Medicaid assistance, they must list all sources of income and all nonexempt assets—investment and savings accounts, IRAs, and even qualified plan balances unless otherwise protected by their state of residence.
Exempt assets generally include the home, car, and some burial insurance contracts. If the couple has more assets than allowed, they’re required to “spend down” excess assets before becoming eligible for Medicaid. But the income side of the ledger is treated differently. If something happens to one of the spouses, half of their income can be used by the other spouse—within limits. The “healthy” spouse’s income is often not limited.
If only there were a product that could convert an asset into income.
Annuities can conform to Medicaid
Although a single person may purchase an annuity, most of this income would need to be used to support his or her care beyond extremely low thresholds set by each state. However, married couples may greatly benefit from an annuity, as the healthy spouse may be able to enjoy all the income if they are the annuity owner. For this strategy to work, certain rules must be followed to make the annuity contract conform with Medicaid (where allowable).
