Advanced Underwriting Consultants

Question of the Day- September 8

Ask the Experts!

Here’s the question of the day.


Question: My client’s husband is trying to qualify for Medicaid.  The case worker told the family that the husband’s IRA should be transferred to the wife to make the husband eligible for Medicaid benefits.  Is such a transfer income tax-free?

Answer: No.

Transfers of IRA balances to the surviving spouse at death are generally income tax-free.  The surviving spouse has the option to make a tax-free rollover of the inherited account to an IRA in her own name.

However, rollovers during lifetime can only be made to IRA accounts titled in the name of the taxpayer doing the rollover.  Any attempt to roll over money to a differently titled account will be treated as a taxable distribution from the existing account, and as a potentially excess contribution to the new one.

The question underscores that a case worker’s recommendation with regard to Medicaid planning should always be double-checked with an elder care attorney, tax professional, financial planner or insurance professional.

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