IRAs, 401(k)s and Florida Medicaid: What Counts and What Doesn't

DCF's manual treats retirement funds, from employer and union pensions to IRAs and Keogh plans, as either an asset or income. Which one depends on payments (ESS Policy Manual 1640.0505.04):

If you're eligible to receive regular payments and you're receiving them, the payments count as unearned income and the account isn't a countable asset. If you aren't receiving payments but the money is currently available, the account's value counts as an asset. Early-withdrawal penalties are subtracted from the value, but the taxes you'd owe are not. An account you can't touch until you leave your job, or one that's legally unavailable, isn't counted.

The manual adds a warning. Someone who is eligible for regular payments but chooses not to take them can be found ineligible for failing to claim a benefit they're entitled to.

DCF applies the same payout-status approach to IRAs as to employer plans, so a 401(k), 403(b), traditional IRA or Roth IRA is analyzed the same way. In practice, the question for many families is whether to set up regular payments before applying. Keep a copy of the plan's payment confirmation and recent statements, because DCF will want to see them.

Once an IRA is paying out, the monthly payment joins Social Security and any pension as income. That matters in two ways.

The income cap. In 2026, a person with gross income over $2,982 a month generally needs a Qualified Income Trust, also called a Miller trust, to qualify (DCF Appendix A-9). A larger IRA payment can push someone over the cap who wasn't over it before. Our Miller trust guide walks through the setup.

Patient responsibility. After approval, most of a nursing home resident's income goes to the facility each month. They keep a $160 personal needs allowance (DCF Appendix A-9). Health insurance premiums and, for a married person, an allowance for the spouse at home are also deducted (42 C.F.R. 435.725). So the IRA payments mostly go toward care. The account itself isn't spent down all at once, and what's left can pass to beneficiaries.

Back to Carol: $1,900 a month in Social Security, an IRA worth $240,000, single, applying in 2026. The table shows how three choices play out. The numbers are rounded and for illustration only.

For married couples, DCF adds up both spouses' countable assets when one spouse applies for long-term care Medicaid. The spouse at home, called the community spouse, can keep up to $162,660 of the total in 2026 (DCF Appendix A-9).

The community spouse's own retirement accounts follow a specific rule (ESS Policy Manual 1640.0505.05):

If, at application, the community spouse is receiving payments from the account, the account is left out of the couple's total. The payments count as that spouse's income when DCF figures the spousal income allowance. If the community spouse isn't receiving payments but could withdraw a lump sum, the full value counts toward the couple's total. Early-withdrawal penalties are subtracted; taxes are not.

Take a hypothetical couple in Boca Raton. Ed is applying, and his wife Linda has a $300,000 IRA. If Linda is not taking payments, her IRA alone puts the couple well over what she can keep. If she's receiving regular payments at application, the IRA is left out, and the payments simply become part of her monthly income. The timing is "at the time of application," so setting this up before applying matters.

Federal tax law makes most retirement account owners start taking required minimum distributions (RMDs) for the year they reach 73. The first one is due by April 1 of the next year, and later ones by December 31 each year (IRS). Roth IRA owners don't have RMDs during their lifetime. People still working can usually delay RMDs from their current employer's plan, unless they own 5% or more of the business. A missed RMD can trigger a 25% excise tax, reduced to 10% if corrected within two years.

For Medicaid, RMDs are income in the month received. A once-a-year RMD is a large lump in one month. Many applicants switch to monthly payments so income is steady and easier to match with the patient-responsibility bill. Whether an annual-only RMD schedule satisfies DCF's "regular payments" standard isn't spelled out in the manual, so it's a point to confirm when you apply.

Withdrawals from a traditional IRA or 401(k) are generally taxed as ordinary income in the year you take them. Cashing out a large account in one year can push income into a higher bracket. Qualified Roth withdrawals are generally tax-free.

One offset helps some families. If a principal reason for being in a nursing home is medical care, the full cost, including meals and lodging, can count as a medical expense. Medical expenses above 7.5% of adjusted gross income are deductible if you itemize (IRS Publication 502). A year of private-pay nursing home bills can absorb a good part of a large withdrawal. A CPA should run the numbers before anyone withdraws.

Note also that DCF doesn't subtract taxes owed when it values an account that isn't paying out (ESS Policy Manual 1640.0505.04). A $240,000 IRA counts as $240,000, even though it might be worth much less after tax.

Annuitizing an IRA. Florida's strict annuity rules for Medicaid (state as beneficiary, equal payments and so on) generally don't apply to an IRA, an individual retirement annuity, a SEP or a Roth IRA set up by an employee or employer (ESS Policy Manual 1640.0609.03). Buying a commercial annuity with non-retirement money is different and must meet those rules.

Beneficiaries. Check the beneficiary form on every account. Florida Medicaid recovers costs by filing a claim in the probate estate of a recipient who was 55 or older (Fla. Stat. 409.9101). An IRA that names a living person usually passes outside probate. One that names "my estate," or has no beneficiary on file, may end up in probate and exposed to that claim. If a beneficiary has a disability, a special needs trust may be a better choice than naming them directly (our special needs guide).