IRAs and Work Related Pensions Exempt

When a person applies for Medi-Cal – whether at home or in an institution – the cash surrender value or balance of an IRA, 401(k), 403(b) or any other work related pension will be considered “unavailable”, as long as the beneficiary is receiving periodic payments of interest and principal. “Periodic” means that it can be a monthly, semi-annual or even an annual payment. “Interest and principal” means that part of the payment must be interest, and part principal. Such payments are mandatory under IRS rules for persons who are 70 years of age. Younger applicants can simply contact the financial institution where the retirement funds are held and ask them to start sending minimal payments of principal and interest. The periodic payments will be treated as income and will count toward the individual’s share of cost, while the balance (the principal) will be considered unavailable. (Title 22 §50402(e)).

The rules are slightly different for spouses if one of the spouses is in a nursing home. A work-related pension in a nursing home spouse’s name would be considered “unavailable” as long as s/he receives periodic payments of interest and principal. A work-related pension that is in the at-home spouse’s name is totally exempt from consideration, regardless of value. (Title 22, §50458) Under the 2006 spousal impoverishment caps, a community spouse may retain the first $99,540 in assets, in addition to any IRA or work-related pension. It is important to know that the remainder of IRAs, pensions and life insurance policies with a named beneficiary are exempt from Medi-Cal recovery.

For more information, refer to the “IRAs, Pensions & Annuities” fact sheet in the Medi-Cal for Long Term Care section on CANHR’s web site at www.canhr.org, or call CANHR at 800-474-1116.