For Myself/Spouse

Planning for Retirement Accounts 

Table of Contents

Types of Retirement Accounts

There are so many different types of actual retirement accounts and also significant variation in the way individuals understand the concept of retirement accounts. The spectrum extends all the way from an IRS approved tax-deferred account labeled accordingly to someone who simply intends to live in retirement off of the value of a particular account. For our purposes, the concept of retirement accounts is usually either a pre-tax account or a Roth Account. 

Retirement accounts have different rules and different opportunities in planning, and it is important to recognize the distinction between Estate Planning strategies and classifying them correctly in Elder Law.

In Estate Planning, you have a unique opportunity to plan tax strategically when designing your plan. In Elder Law, it is vital that you understand how these accounts are considered under various programs to best prepare for you or a spouse needing care. Factoring Retirement Accounts into your plan requires an understanding of the rules and requirements unique to these accounts, so you can put yourself and your loved ones in the best position to successfully benefit from these funds over your lifetime and theirs with an absolute minimum of tax implications.

Estate Planning and Retirement Accounts

Any comprehensive Estate Plan will include aligning your assets to complement your overall plan. Whether you are using a Will, a Trust, or a combination of other ancillary documents, your assets must be coordinated, so the documents and directions your intend to direct your estate after death actually control the assets you own at that time. Retirement accounts are often left out of this process. There is an unfortunate assumption that maintaining a Beneficiary Designation on the account is all that is needed. However, the Beneficiary Designation is the final step in planning for that asset, not the first and only step needed.

The recent legal changes impacting retirement accounts have dramatically changed the way we evaluate those assets and recommendations for how they must be treated at death. Tax strategizing becomes paramount for the account owner during their lifetime and for the potential beneficiaries at the death of the owner. No one wants to pay more in taxes than they would need to, and you certainly do not want to pass on avoidable taxes to your loved ones.

If you have saved for retirement using accounts where you have put off paying income taxes on the money until you withdraw the funds later in life, you have a tax problem to address through your plan. You may address the issue by tax-efficient distributions during your lifetime, considering Roth conversions, utilizing charitable contributions to minimize liability while benefiting a cause you find important, maximizing your tax bracket, etc. Your Estate Plan can also help you minimize the tax impact on your loved ones through strategizing assets among beneficiaries, considering tax bracket management, understanding the exceptions that may apply to your beneficiaries to increase the value that you are able to pass on to them, including charitable beneficiaries if you are so inclined in a way that ensures you maintain efficiency in passing assets, etc.

The important piece to remember in this is to work with professional advisors who understand the current law as it applies to you and your circumstances and can work with you to better arrange your assets and plan for the distributions you will have to take one day from some of them. Some of these strategies require you to be planning ahead to really take full advantage while others can only be implemented after your passing. Either way, you need to understand how your assets work during your lifetime, what options you have to improve tax efficiency in your circumstances now, and how you can increase the value of what you pass on to your loved ones after your death. Do not pay more in taxes than you have to, and minimize the tax you will pass to those you love later.

Retirement Accounts and Long Term Care Planning


Medicaid may consider retirement accounts (e.g., IRAs, 401Ks, 403(b)s, etc.) as an available asset for care. If you are single, Medicaid will count any retirement account as an available asset for your care. This means that Medicaid will not provide assistance until the single individual has spent all of their countable assets (including retirement funds) down below $2,000. If you are married, Medicaid will consider the retirement account of the spouse receiving care as a countable asset.

Planning in Advance

When one of the spouses has a much larger retirement account value than the other, it can lead to each spouse having a different quality of care. This is especially true when the spouse with the much larger retirement account needs care first. Once the first spouse spends down their retirement account, the second spouse will not have as much money available for their own care later on. This imbalance is quite common, but proper planning in advance of needing care can alleviate the issues caused by that imbalance.

One way to plan ahead is to look at purchasing a long-term care insurance policy. Long-term care insurance is a great way to plan around an imbalance in retirement assets. The insurance will help offset the cost of care that would otherwise drain the retirement account of the institutionalized spouse. You can also work with an Elder Law attorney and your financial advisor to develop a plan to protect assets in advance of needing care. By selecting certain assets to protect in advance, it is possible to offset an imbalance in retirement assets and ensure equal levels of care for each spouse.

Immediate Qualification

What if you do not have time to plan in advance for care? Thankfully, there are ways to still plan to protect some of your retirement assets. Medicaid does not count a healthy spouse’s income against the institutionalized spouse.

One common issue with retirement accounts occurs when the healthy spouse passes away before the institutionalized spouse. If the surviving spouse receives all of the assets of the deceased spouse it could cause disruption to their Medicaid benefits. A key component to Medicaid planning is making sure that the previously unavailable assets of the healthy spouse do not force the institutionalized spouse to lose their benefits when they are receiving care. The Elder Law Attorneys at Hooper Law Office can help you and your spouse plan around these concerns. 

Department of Veterans Affairs Improved Pension Program and Retirement Accounts


Unlike Medicaid, the VA uses the same countable asset limit for single applicants and married couples. Regardless of which spouse is receiving care, both spouses’ retirement accounts are countable as assets for the VA Improved Pension Program. 

Planning in Advance

Many of the same strategies from Medicaid retirement account planning apply to the VA Improved Pension Program. Have your insurance agent or financial advisor help you look into long-term care insurance policy options to offset the cost of care. Talk with your financial advisor and tax advisor about Roth conversions for your retirement accounts as these conversions allow you to stretch out the tax liability for your accounts over time.

Immediate Qualification

In October 2018, the rules around the VA’s Improved Pension Program changed. Prior to that date, there was no lookback period for transfers of assets that helped a Veteran become qualified for the program. However, transfers of assets that occur after that date that also cause the Veteran to become qualified for the program are now considered a divestment. This means the applicant will receive a penalty period, a timeframe in which they will not receive benefits, based on the value of the divestment.

Retirement accounts can be a particularly challenging asset to plan for with the VA rules. On top of the divestment rules, the attorney helping you will need to consider the tax impact of planning with the retirement accounts, which becomes more complicated with larger retirement funds. Work with an Elder Law Attorney that is accredited by the Department of Veterans Affairs if you have concerns about your eligibility for this program. Certain planning strategies that work for Medicaid don’t work for the VA Pension and vice versa. The attorney you engage must understand both sets of rules. 

 Why is it important to plan, specifically, for Retirement Accounts?

Retirement accounts (e.g., IRAs, 401Ks, 403(b)s, etc.) now make up a large portion of many estates. Retirement accounts are also the assets with the most extensive tax consequences for Long-term care planning. Many other types of assets can be protected from long-term care expenses in advance with little to no immediate tax consequences. However, retirement accounts must remain in the original individual holder’s name to maintain its tax status. This means that any transfer of the value of that type of asset results in a taxable event. This makes it incredibly important to plan in advance or invest in insurance to offset the need to transfer the value of your account when care is needed.

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