Two More Plumbers Look at the Leak: Purchasing an Annuity in an Institutionalized Spouse's IRA That Is Irrevocably Payable to the Community Spouse May Work for Medicaid Purposes but Runs a Risk of Adverse Tax Treatment

Authors

David M. English, University of Missouri School of LawFollow
Ron M. Landsman

Document Type

Article

Publication Date

Fall 2020

Abstract

A recent article in NAELA ]ournal addressed the problem of how to maximize Medicaid benefits and minimize the tax burden for an institutionalized spouse who has a substantial individual retirement account (IRA) in a state where the account is not exempt. The primary problem is that most strategies require that the IRA be cashed out, triggering income tax liability for the entire withdrawal for that tax year. Once the IRA is cashed out, the proceeds can be spent down in any number of ways; one option is for the community spouse to purchase a Medicaid qualified annuity (MQA). The proposed solution is creative - annuitize the IRA itself but make it irrevocably payable to the community spouse. The success of this strategy depends on favorable answers to two distinct legal questions.

Recommended Citation

David M. English and Ron M. Landsman, Two More Plumbers Look at the Leak: Purchasing an Annuity in an Institutionalized Spouse's IRA That Is Irrevocably Payable to the Community Spouse May Work for Medicaid Purposes but Runs a Risk of Adverse Tax Treatment, 16 NAELA Journal 131 (2020).
Available at: https://scholarship.law.missouri.edu/facpubs/1222