Individual Retirement Accounts (IRAs) and Roth IRAs are essential components of many retirement strategies, and very likely comprise a large portion of your assets. In Ohio, the treatment of these accounts varies significantly when considering Medicaid eligibility and state taxation. Understanding these distinctions is crucial for effective retirement and estate planning.

Medicaid Considerations for IRAs and Roth IRAs in Ohio

Medicaid eligibility often hinges on an individual’s assets and income. In Ohio, the treatment of retirement accounts like IRAs and Roth IRAs depends on their status:

• Traditional IRAs in Payout Status: When an IRA is in “payout status,” meaning the account holder is taking regular, periodic distributions, the principal of the IRA is generally considered exempt from being counted as a resource for Medicaid eligibility purposes. Instead, the distributions are treated as income.
  
  
• Roth IRAs: Roth IRAs do not require minimum distributions during the account holder’s lifetime, which complicates their treatment under Medicaid rules. Without these required distributions, Roth IRAs may not be considered in payout status, which would render the entire account as a countable resource for Medicaid eligibility. However, Ohio will exempt a Roth IRA if the owner optionally signs up for regular, monthly payments. This is a very helpful rule, not enjoyed in many other states. 

The SECURE Act and Its Implications

The Setting Every Community Up for Retirement Enhancement (SECURE) Act introduced changes that impact retirement accounts. The biggest change was the near-elimination of the stretch IRA, or the ability for the beneficiary of an IRA to stretch their payments over the course of their lifetime. 

Now, only certain categories of beneficiaries have the potential to receive a lifetime stretch, including: surviving spouses, disabled or chronically ill beneficiaries, or those beneficiaries no more than 10 years younger than the original account holder. There are also special rules for minor children who inherit IRAs, but they still do not get a full lifetime stretch. Rather than a lifetime stretch, IRAs must now be fully distributed within ten year of inheriting the IRA, accelerating tax liabilities and affecting estate planning strategies.

The SECURE Act als​o raised the age at which IRA holders must begin taking their required minimum distributions (RMDs). The age to begin receiving RMDs used to be 70 ½ and it is now age 73 for anyone born from 1951 through 1959. For anyone born in 1960 or later, they will not have to begin taking RMDs until they turn 75. 

This delay in RMDs provides an opportunity to plan appropriately for Social Security payments in combination with retirement accounts. However, it will also likely cause higher RMDs when plan owners do begin receiving those payments, since the balance continued to grow for an extra couple of years.

These changes underscore the importance of revisiting your retirement and estate plans to ensure they align with current laws and your financial goals.​

Planning Considerations

Given the complexities surrounding the treatment of IRAs and Roth IRAs in Ohio, especially concerning Medicaid eligibility and taxation, it’s advisable to:

• Consult with a Team of Professionals: Engage with financial advisors, tax professionals, and estate planning attorneys (…like us! We work with your advisors closely) familiar with Ohio’s regulations to develop strategies tailored to your situation.​
  
  
• Stay Informed: Laws and regulations can change. Regularly review your retirement and estate plans to ensure compliance and that they align with your goals – whether that’s protecting assets from long-term care costs, reducing your tax burden, reducing your beneficiaries’ tax burden, or growing your wealth.
  
  
• Consider Timing of Distributions: Strategically plan distributions from your retirement accounts to manage tax implications for you and your beneficiaries, and maintain Medicaid eligibility, if needed.​
  
  

Understanding the nuanced treatment of IRAs and Roth IRAs in Ohio is vital for effective financial planning. By proactively addressing these considerations, you can better safeguard your assets and ensure they serve your intended purposes during retirement and beyond.