A nursing home cannot reach into your accounts and take your IRA. Medicaid, however, can require you to drain it before it will pay for your care, and that is what most families are really asking when they wonder whether a nursing home can take your IRA. Whether your retirement savings survive depends on how the account is structured, whose name is on it, and which state you live in.
How Medicaid Treats an IRA
Federal law under 42 U.S.C. § 1396p sets the framework states use to decide who qualifies for long-term care coverage, and an IRA is generally treated as a countable resource unless a specific exemption applies.1Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets Most states cap countable assets for an individual applicant at $2,000. A few outliers go higher, up to $130,000 in states that recently overhauled their programs, but the majority sit at the low figure.
The practical effect is stark. If you hold a $200,000 traditional IRA in a state with a $2,000 limit and no exemption fits your situation, you have to spend down nearly the entire account on care before Medicaid will contribute anything.
When Payout Status Protects the Account
The most talked-about protection is placing the IRA in “payout status,” meaning you take regular periodic distributions. The theory is that the state then treats the account as an income stream rather than a lump-sum asset. Your monthly distribution counts as income and goes toward the nursing home bill, but the remaining principal stays off the asset ledger.
This only works in roughly a third of states. About 15 jurisdictions, including California, Florida, New York, and Texas, treat an IRA in payout status as an exempt resource. In the other 30-plus states, the IRA is countable whether or not you are taking distributions, and putting it into payout status accomplishes nothing for Medicaid purposes.
Even where payout status helps, the distributions have to meet specific rules. Payments generally must follow IRS required minimum distribution schedules based on life expectancy tables, and they must be periodic rather than sporadic lump sums.2Social Security Administration. Actuarial Life Table If the state finds the withdrawal schedule isn’t actuarially sound, it can reclassify the whole account as countable.
Roth IRAs Are Harder to Protect
Roth IRAs have no required minimum distributions during the owner’s lifetime. Because there are no mandatory withdrawals, a Roth generally cannot be placed into the kind of payout status some states recognize. The account sits as a lump sum, and most state Medicaid agencies count it as available. The tax-free growth that makes a Roth attractive in normal retirement planning offers no shield in a Medicaid analysis.
What Happens to a Spouse’s IRA
When one spouse enters a nursing home and the other stays at home, federal spousal impoverishment rules keep the at-home spouse from being wiped out. The Community Spouse Resource Allowance sets a protected pool of assets. For 2026, the federal CSRA runs from a minimum of $32,532 to a maximum of $162,660, depending on the couple’s combined resources at application.3Medicaid.gov. Spousal Impoverishment
Retirement accounts owned solely by the community spouse get favorable treatment in many states. A number of jurisdictions treat the community spouse’s IRA as fully exempt regardless of balance. In those states, the spouse at home can keep a substantial IRA while the institutionalized spouse qualifies for Medicaid-funded care.
Timing matters. The state takes a snapshot of all marital assets when the institutionalized spouse first enters the facility or applies for Medicaid, and that snapshot drives the CSRA calculation. Retitling accounts into the community spouse’s name before the snapshot is a legitimate planning move, but only if it happens with the look-back rules in mind.
The Tax Cost of Cashing Out
If Medicaid forces you to spend down a traditional IRA, the loss goes beyond the account balance. Every dollar withdrawn counts as ordinary income. A $150,000 liquidation might net you closer to $110,000 after federal and state income taxes, and the money lost to taxes doesn’t count toward the spend-down either.
Applicants under 59½ face an additional 10% early withdrawal penalty on top of the income tax.4Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions A $100,000 withdrawal at that age could lose $30,000 or more to combined taxes and penalties before a single dollar reaches the nursing home.
Gifting the Money and the Five-Year Look-Back
Handing IRA money to family to duck the asset limit rarely works. When you apply for Medicaid, the state reviews every financial transaction from the previous 60 months. Any transfer for less than fair market value produces a penalty period during which you are ineligible for coverage.1Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
The penalty is calculated by dividing the value of the transferred assets by the average monthly cost of nursing facility care in your state. State divisors range from about $5,400 to more than $17,500 per month, so an identical gift produces very different penalty periods depending on where you live. During the penalty period, you pay privately, and nursing home costs nationally average above $9,000 per month for a semi-private room.5Federal Long Term Care Insurance Program. Costs of Long Term Care
The clock catches families off guard. The penalty doesn’t run from the date of the gift. It runs from the date you have entered a facility, applied, and would otherwise be eligible. A gift made three years ago can still generate a penalty that begins today.
Transfers That Don’t Trigger a Penalty
Federal law recognizes several exceptions. You can transfer assets without triggering ineligibility to:
- A spouse. Interspousal transfers are generally exempt, which is why retitling accounts is a core planning tool.
- A child of any age who is blind or disabled.
- A home to a sibling co-owner who has lived there at least a year, or to an adult child who lived in the home and provided care that delayed your institutionalization.
These exceptions are narrow and require documentation. A transfer of an IRA to a healthy adult child produces a penalty period, and the withdrawal itself creates the tax liability described above.
What Happens to the IRA After Death
Medicaid’s interest in the account doesn’t end when the recipient dies. Federal law requires states to seek reimbursement for nursing facility services from the estates of recipients who were 55 or older, though the state cannot pursue recovery while a surviving spouse, a child under 21, or a blind or disabled child of any age is still living.6Medicaid.gov. Estate Recovery
Most recovery focuses on probate assets. An IRA with a named beneficiary usually passes outside probate and, in many states, outside the reach of estate recovery. About half the states, however, use an expanded definition of “estate” that reaches non-probate assets, and in those states the state can still claim against an IRA balance to offset care costs paid during the recipient’s lifetime. Naming a beneficiary is the strongest available step, but it is not a guarantee everywhere.
Why Timing Decides the Outcome
Families who preserve retirement assets and families who lose them usually differ on one variable: how far ahead they planned. Five or more years before a nursing home stay, real options exist. Retitling accounts between spouses, converting a traditional IRA to payout status in a state that recognizes the exemption, and using exempt transfer categories all remain available. Once someone is already in a facility or inside the look-back window, most of those doors have closed.
Because outcomes turn heavily on state rules, whether payout status protects your account, whether your state uses expanded estate recovery, and how the penalty divisor is calculated all depend on where you live. An elder law attorney who works in your state’s Medicaid system can tell you which strategies actually apply in your jurisdiction rather than the ones that only work in 15 states out of 50.