Community Spouse IRAs Now Countable in Indiana: A Valuable Solution to Preserve Tax-Qualified Funds

Effective July 26, 2024, Individual Retirement Accounts (IRAs) owned by a community spouse are now considered countable for Medicaid purposes in the state of Indiana. Previously, these accounts were exempt from Medicaid. This significant change presents a challenge for couples who are now faced with the reality that their carefully planned retirement savings could be jeopardized when seeking Medicaid eligibility for long-term care. Fortunately, we have a solution for you!

The Solution: A Medicaid Compliant Annuity

In cases where the community spouse owns an IRA, elder law attorneys in Indiana can use the Medicaid Compliant Annuity (MCA) to navigate this new landscape. An MCA is a powerful asset preservation tool designed to convert countable resources, such as IRAs, into an income stream, helping to accelerate Medicaid eligibility.

What About Promissory Notes?

While promissory notes are popular Medicaid planning tools in Indiana, they are not a viable solution when dealing with tax-qualified funds, such as those in an IRA. That’s where an MCA comes in. MCAs can be funded with tax-qualified dollars, giving clients a path to protect these assets while still meeting Medicaid’s strict financial constraints.

Funding an MCA with an IRA

When dealing with an IRA or other tax-qualified funds, there are two options to fund the account into a Medicaid Compliant Annuity: Trustee-to-Trustee Transfer or 60-Day Rollover.

Trustee-to-Trustee Transfer

A Trustee-to-Trustee Transfer takes place directly between plan administrators. Along with the MCA application, the account owner fills out authorization paperwork for the transfer, and the insurance company issuing the MCA obtains the funds directly from the custodian company.

60-Day Rollover

To complete a 60-Day Rollover, the account owner contacts the IRA custodian company and initiates a complete liquidation of the account without withholding any taxes. The account owner then receives the liquidation check and must reinvest the funds into a tax-qualified MCA within 60 days to avoid immediate tax consequences. An individual is limited to one rollover per 365-day period.

Taxation of IRA-MCA Funds

Since traditional IRA contributions are made pre-tax, the funds are taxed when withdrawn or liquidated. By transferring the IRA into an MCA, the tax impact is spread out over the annuity’s entire term, with taxes applied only when each payment is received rather than in a lump sum. This means that the longer the MCA term, the greater the tax advantage for the client.

Read More: Filing Taxes After Funding a Medicaid Compliant Annuity With an IRA

Why Work with Krause Financial?

Navigating the complexities of Medicaid planning can be challenging, especially when dealing with tax-qualified funds and regulation changes. Fortunately, when you work with us, you can take advantage of:

• Expert Guidance: Our team of experts is well-versed in the latest Medicaid regulations and can provide tailored solutions to protect your clients’ assets.
• Comprehensive Support: From initial case analysis to final implementation, we guide you through every step of the process, ensuring that your clients receive the best possible outcome.
• Trusted Partnerships: By partnering with Krause Financial, you can offer your clients proven solutions backed by a company with a long history of success in Medicaid planning.

If you’re facing a case where a community spouse’s IRA is now countable under Indiana’s new Medicaid rules, don’t hesitate to reach out to us. Schedule a call with us today to explore how we can help you protect your clients’ hard-earned assets while ensuring their eligibility for Medicaid.