NEW ALLOWABLE INCOME LIMIT and MONTHLY PENALTY DIVISOR
Rhode Island Department of Human Services – Medicaid Long Term Support Services – has advised that The Allowable Income Limit for 2022 through 3/31/2023 is $9.961 per month. Effective August 1, 2023 the new allowable income limit will be increased to $10,190.00 per month.
This figure is also used as the Penalty Period Divisor for calculating disqualifying transfers of assets. Meaning, for every $10,190 of assets transferred away where something of value was not received in return, will cause a disqualification of one (1) month of LTSS Medicaid benefits for the Applicant for those benefits.
Section 401(a)(9) requires most retirement plans and individual retirement accounts to make required minimum distributions (“RMDs”) over the lifetime of the individual (or the lifetime of the individual and certain designated beneficiaries) beginning no later than such individual’s required beginning date (generally, April 1 in the year following attainment of age 72). This minimum amount is determined by dividing the individual’s account balance by the applicable distribution period found in one of the life expectancy and distribution tables (the “Tables”).
On November 12, 2020 the Department of Treasury is scheduled to publish final regulations updating the Tables, which is in response to an Executive Order issued in August of 2018 directing the Secretary of the Treasury to review the Tables to determine if they should be updated to reflect current mortality data.
RMD’s Tables are being updated
Longer Life Expectancies Reflected
The updated Tables will generally reflect longer life expectancies than presently reflected in the current Tables last published based on 2003 mortality rates. For example, the current Tables use a life expectancy of 25.6 years for a 72-year-old for purposes of calculating the RMD while the updated Tables will use a life expectancy of 27.4 years. This will result in reduced RMDs, enabling individuals to retain larger balances in retirement accounts to account for the possibility of living longer.
The updated Tables will be effective for distributions beginning on or after January 1, 2022 and will include a transition to ‘re-set’ the life expectancy for certain individuals already receiving RMDs based on the prior Tables. For example, an individual who attains age 72 in 2021 will be required to take an RMD no later than April 1, 2022. The updated Tables will not apply to calculate the individual’s 2021 RMD (paid on or before April 1, 2022), but the updated Tables will apply to the 2022 RMD (paid on or before December 31, 2022). The regulations do not include periodic automatic updates to the Tables. Instead, the Treasury and IRS will review the Tables at the earlier of 10 years or whenever a new study of mortality experience is published. The final regulation and new Tables can be found here.
Impact on Medicaid and Estate Planning
RMD’s are a factor that every estate planner must consider into calculations of income and assets for Medicaid eligibility. Understanding the new tables and income that will be forced out to a individual or spouse is important to know as there are minimum and maximum income limits. A personal consult with an estate planning attorney can best illustrate the impact this will have on your plan.
What is the difference between a Roth IRA and a Traditional IRA?
A Roth IRA is an individual retirement account that offers tax-free growth and tax-free withdrawals in retirement. Roth IRA rules dictate that as long as you’ve owned your account for 5 years and you’re age 59½ or older, you can withdraw your money when you want to and you won’t owe any federal taxes.
A Traditional IRA is a type of individual retirement account that lets your earnings grow tax-deferred. You pay taxes on your investment gains only when you make withdrawals in retirement.
In addition, when planning for an considering long term care planning and possibly needing to qualify for Medicaid, most states do not deem Qualified Accounts such as 401(K)’s and IRA’s and Roth IRA’s as countable resources.
Therefore, the decision to make is: Do I take the income tax hit now and convert to a Roth IRA, or do I wait take it later when I start drawing down on the traditional IRA or 401(K)?
Should I Convert to a Roth IRA?
Roth IRA conversions have been available for many years. Two recent developments suggest that you reconsider Roth IRA conversions for yourself in 2020:
The government’s response to COVID-19 significantly raises the Federal deficit, making it more likely that tax rates will be going up in the future.
You may be in a lower tax bracket in 2020, which would reduce the tax cost of the conversion.
Both of these factors make Roth IRA conversions more attractive than they were in 2019. The decision as to whether these factors tip the scale in favor of a Roth IRA conversion will require careful consideration. You will need to consider your overall financial plan and make certain assumptions.
Who should do a Roth IRA conversion?
The ideal candidate for a Roth IRA conversion would check off most or all of these boxes:
You can pay the tax on the conversion out of a taxable investment portfolio.
You expect that you will be in the highest income tax bracket in the future when IRA distributions would be required.
You expect that you will not need to withdraw funds from the Roth IRA during your lifetime.
You expect that your estate will be subject to estate tax at your death and your spouse.
Who should not do a Roth IRA Conversion?
Some people who should not do a Roth IRA conversion currently are as follows:
People who expect to be in a lower tax bracket at retirement.
People who can use IRA distributions to take advantage of the lower brackets.
People who want to preserve the option of using income from their IRA to offset future medical costs for long-term care or other significant medical expenses, bearing in mind the the principal balances are protected and currently not deemed a countable resource in many states.
People who plan to use their IRA for charitable contributions.
Want to discuss how conversion will impact you? Contact us for a no obligation consultation.
Will my COVID-19 Stimulus Check impact Medicaid Eligibility?
The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act (passed on March 27, 2020) is a $2 trillion economic relief package intended to help offset the huge financial crisis caused by the Coronavirus (COVID-19) pandemic. As part of the CARES Act, the majority of Americans, including those who are elderly and on fixed income, will receive a one-time stimulus check from the Internal Revenue Service (IRS).
Stimulus checks will not be counted as income and therefore will not impact Medicaid beneficiaries or applicants. However, should the stimulus money not be spent within 12 months, it may be counted as an asset, and therefore could impact eligibility in the year ahead. Therefore, make sure you spend the funds as soon as possible on eligible purchases in accordance with Medicaid regulations (DO NOT GIFT IT).
Nursing Home Residents
he receipt of a stimulus check by Medicaid beneficiaries who reside in nursing homes will not impact these individuals’ Medicaid benefits. Stated differently, the receipt of the check will not disqualify them from Medicaid nursing home care. This is because Medicaid will not count the money as income, which means it cannot push one over Medicaid’s income limit, and hence, result in the loss of Medicaid benefits.
United States Treasury stimulus payment for Coronavirus CoViD-19 outbreak disease.
While Medicaid-funded nursing home residents are required to surrender all of their income except for a personal needs allowance and a monthly maintenance needs allowance for a non-applicant spouse (if applicable) to Medicaid, the money from the stimulus check will not have to be surrendered to Medicaid. This is because, as mentioned above, the stimulus check is not considered as income by Medicaid. Rather, it can be thought of as a tax refund.
Furthermore, the stimulus check will not count as assets, given the money is spent within 12-months of receiving it. So, within this time frame, a nursing home Medicaid recipient can have possession of the money and it will not impact one’s Medicaid eligibility. However, it is imperative that the money, in its entirety, be spent within one year. If not, the money will count towards Medicaid’s asset limit and can potentially push one over the limit, resulting in Medicaid disqualification.
The money can be spent by nursing home residents in a number of ways. For example, one might buy new clothing, purchase a television for his / her room, stock up on extra snacks, or purchase an irrevocable funeral trust. What one does not want to do is to buy assets that are counted towards Medicaid’s asset limit. For instance, collectors coins would most likely be considered an investment and the value of them would be counted towards the asset limit, potentially causing one to be over the limit and lose Medicaid benefits.
The stimulus check will either be directed deposited in the nursing home resident’s bank account or be mailed to the address on one’s 2018 or 2019 tax return. To further clarify, if a refund was issued via direct deposit for one’s tax return, the stimulus check will be directed deposited in the same bank account. If not, the check will go in the mail. Persons who do not have to file tax returns, such as Social Security recipients, will receive stimulus checks in the same manner in which they receive their Social Security benefits. Therefore, if one receives his / her Social Security payment by direct deposit, the stimulus check will automatically be received via direct deposit also.
Spouses of Nursing Home Residents
Spouses of nursing home residents on Medicaid (called Community Spouses), who are not on Medicaid themselves will receive a stimulus check. The receipt of this check will not impact their spouses’ Medicaid eligibility in any manner. First, and foremost, the money from the stimulus check is not considered income by Medicaid, and even if it were, the income of a non-applicant spouse is not considered in the continuing Medicaid eligibility of his / her nursing home spouse.
For Medicaid beneficiaries, the entire check needs to be spent within 12-months of receiving it or the remaining funds will count as assets towards Medicaid’s eligibility. However, the same rule does not hold true for community spouses. To be clear, there is no time limit in which a spouse of a nursing resident must spend his / her stimulus check. Furthermore, non-applicant spouses can spend the stimulus check in any manner they choose, such as paying rent or mortgage, utility bills, food, or even on a splurge, such as a pricey piece of jewelry.
No matter how long it takes for the community spouse to spend the funds, and regardless of how they are spent, it will not impact the institutionalized spouse’s Medicaid eligibility. In other words, a community spouse can be rest assured that it will not cause the nursing home resident to lose his / her nursing home Medicaid benefits. This is because the assets of the non-applicant spouse are not considered for the continuing Medicaid eligibility of his / her Medicaid beneficiary spouse. (The community spouse’s assets are only considered when determining initial eligibility).
The community spouse will receive the stimulus check either via direct deposit or in the mail. Exactly the manner in which it will be received will be based on one’s 2018 or 2019 tax return and how a refund was issued. For instance, if one received a refund via the mail, the address on file will be used and the stimulus check will be mailed to that address. For those who are not required to file tax returns, such as recipients of Social Security, the check will be received in the same way in which their monthly Social Security benefit is received. This means that if it is deposited directly in one’s bank account, the stimulus check will also be directly deposited.
Please note that the institutionalized spouse will also receive a stimulus check. However, at this time, it is not known if the check will be issued separately from his / her community spouse’s check. It is our assumption that if 2018 or 2019 tax returns were filed jointly, the couple will receive one check (couples who filed joint tax returns are eligible for double the amount of a single filer), while if tax returns were filed separately, each spouse will receive an individual check. Again, for persons on Social Security, there is no need to file tax returns. In this case, checks will automatically be received in the same manner in which Social Security benefits are received.
How Much Will the Stimulus Check Be?
The amount of the stimulus check, also called an economic impact payment or recovery rebate, may be for as much as $1,200 / person.
• Individuals who earn up to $75,000 / year will receive a $1,200 check.
• Married couples, filing jointly who earn up to $150,000 / year, will receive a $2,400 check.
• Individuals who earn up to than $99,000 / year will receive a check, but it will be for less than $1,200.
• Married couples, filing jointly who earn up to $198,000 / year, will receive a check, but it will be for less than $2,400.
Payments will be based on one’s tax returns from 2018 or 2019. Please note that for disabled persons and seniors who receive Social Security payments, it is not necessary for a tax return to be filed. (Persons who receive Social Security benefits generally do not have to file a tax return). Rather, the IRS will automatically send out economic impact payments to these individuals.
Checks will be received either via direct deposit or in the mail.
Seniors looking for extra income are turning to current phone and computer technology and service opportunities such as UBER and Airbnb.
Many boomers approaching their retirement years are anxious about having enough income. But many are finding help by turning to the so-called “gig economy” – driving for Uber and renting out extra rooms in their homes to earn extra income.
Twenty-four percent of all Uber drivers are over age 50, and 3 percent report being formerly retired. Bloomberg reports that people age 60-plus are the fastest-growing and best-reviewed age group on Airbnb. DogVacay, which connects pet sitters with owners, reports that people over the age of 50 constitute 25 percent of sitters.
The JPMorgan Chase Institute reports that seniors earn about 25 percent of their income from working and that this share may rise in the future. It found the percent of seniors in the workforce has been increasing recently, from 20.7 percent in 2009 to 23.1 percent in 2015. The institute anticipates that much of the anticipated rise will come from the gig economy.
Of course, earning income in the gig economy has some downsides. Most of the time, workers are considered contractors and are responsible for paying their own taxes. In addition, the income can be quite unpredictable. However, these drawbacks may be an acceptable trade-off to earning additional spending money to supplement Social Security and other retirement income.
The article by CBS Money Watch explaining this trend can be found HERE.
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About Mathew J. Leonard ESQ.
Matthew J. Leonard's practice is concentrated in business law, estate and asset protection planning, elder care, civil and probate litigation and real estate. He is a member of the Rhode Island, Massachusetts and Florida bars. He is a frequent lecturer and has authored and spoken on in many occasions through the state.