How Medicaid Counts Your Roth IRA When You Apply

Medicaid does not count the money inside a Roth IRA as a resource when you apply

When Medicaid calculates whether you own too much to be covered, it looks at your Modified Adjusted Gross Income (MAGI) and your total resources. A Roth IRA is treated differently from other retirement accounts: the balance in the account itself is not counted as a resource, and contributions you make to it do not count as income in the year you make them. This is one of the few places where Medicaid gives retirement savings a break.

However, the money you withdraw from a Roth IRA does count as income in the year you take it out — unless it is a may have access to distribution. The rules are specific, and the difference between a may have access to and non-may have access to withdrawal matters for your Medicaid status.

Key Takeaways

The balance in your Roth IRA is not counted as a resource when Medicaid reviews your case, so you can have a substantial Roth IRA and still be covered.
Money you contribute to a Roth IRA in a given year does not count as income for that year's Medicaid calculation.
Withdrawals from a Roth IRA count as income in the year you withdraw them, which can affect your Medicaid status if the withdrawal is large.
may have access to distributions from a Roth IRA (after age 59½ and five years of account ownership) are treated as income, but non-may have access to distributions may be treated differently depending on your state.

Why Roth IRAs are treated as protected resources

Medicaid's resource rules are designed to let people keep retirement savings without losing coverage. Federal Medicaid rules specifically exclude retirement accounts — including Roth IRAs, traditional IRAs, 401(k)s, and similar plans — from the resource calculation. This means the account balance does not count toward your resource limit, no matter how much money is in it.

The protection applies to the account itself, not to money you have already withdrawn. Once you take money out of a Roth IRA, it becomes cash in your bank account, and cash counts as a resource. If you withdraw a large amount and hold it in a checking or savings account, that money can push you over your state's resource limit and make you ineligible for Medicaid.

How Roth IRA contributions affect your MAGI

Contributions you make to a Roth IRA are not deductible from your income on your tax return, and they do not reduce your MAGI for Medicaid purposes. However, the act of contributing does not increase your MAGI either. The money you put into a Roth IRA comes from after-tax income, so it has already been counted as income when you earned it.

This means that if you earn $30,000 in a year and contribute $3,000 to a Roth IRA, your MAGI for Medicaid is still $30,000. The contribution itself does not lower your MAGI, but it also does not raise it. Your Medicaid status depends on the $30,000 you earned, not on how you chose to save part of it.

Withdrawals from a Roth IRA and how they count as income

When you withdraw money from a Roth IRA, the treatment depends on whether the withdrawal is may have access to or non-may have access to. A may have access to distribution is one where you have owned the account for at least five years and you are at least 59½ years old, or you meet other specific conditions like disability or a first-time home purchase. A non-may have access to distribution is any withdrawal that does not meet these conditions.

For a may have access to distribution, the entire amount you withdraw counts as income in the year you withdraw it. For a non-may have access to distribution, the earnings portion of the withdrawal counts as income, but your original contributions do not. Because Roth IRAs are funded with after-tax money, the IRS tracks how much of your balance is contributions (which you can withdraw tax-free) and how much is earnings (which are taxable if withdrawn early).

Medicaid follows the same income rules as the IRS. If you take a non-may have access to distribution and only the earnings portion is taxable, only that portion counts as income for Medicaid. If you take a may have access to distribution, the full amount counts as income. Either way, a large withdrawal in a single year can raise your income above your state's Medicaid limit and cause you to lose coverage for that year.

What happens if you withdraw money and your income exceeds the limit

If a Roth IRA withdrawal pushes your income above your state's Medicaid limit in a given month or year, you will lose Medicaid coverage for that period. The timing depends on how your state calculates income — some use a monthly average, others use a calendar year, and some use a different method. You should contact your state Medicaid office before making a large withdrawal to understand how it will affect your coverage.

Once your income drops back below the limit, you can reapply for Medicaid. There is no permanent penalty for a withdrawal that temporarily raises your income, but you will have a gap in coverage during the months when your income was too high. If you need medical care during that gap, you will have to pay out of pocket.

Planning a Roth IRA withdrawal if you are on Medicaid

If you are receiving Medicaid and you want to withdraw money from a Roth IRA, the safest approach is to spread the withdrawal across multiple years or multiple months. A $5,000 withdrawal in December might not affect your coverage, but a $50,000 withdrawal in a single month almost certainly will. Breaking it into smaller amounts over time keeps your monthly or annual income below the limit.

You can also coordinate the timing of a withdrawal with months when your other income is lower. If you receive Social Security and a pension, you might withdraw from your Roth IRA in a month when one of those payments is delayed or when you have other deductions that lower your countable income. Your state Medicaid office can explain how your specific income sources are counted and help you plan.

Some people use Roth IRA withdrawals to pay for expenses that reduce their countable income — for example, paying medical bills or long-term care costs out of pocket instead of using Medicaid to cover them. This is a more complex strategy and depends on your state's rules, so discuss it with a Medicaid caseworker or a benefits counselor before you act.

Frequently Asked Questions

Can I have a Roth IRA and still get Medicaid?

Yes. The balance in your Roth IRA does not count as a resource for Medicaid, so you can have a large Roth IRA and still be covered. The only issue is if you withdraw money from it, which counts as income and could raise your income above the limit.

Does my Roth IRA affect my MAGI for Medicaid?

The account balance does not affect your MAGI. Contributions do not lower your MAGI, and withdrawals count as income only in the year you withdraw them. Your MAGI is based on your earned income, pensions, Social Security, and other sources — not on whether you have a retirement account.

What if I withdraw from my Roth IRA and lose Medicaid?

You can reapply once your income drops back below the limit. There is no permanent loss of coverage. However, you will have a gap in Medicaid during the months when your income was too high, and you will have to pay for medical care during that gap yourself.

Is there a way to withdraw from my Roth IRA without affecting my Medicaid?

Spreading withdrawals across multiple years or months can keep your income below the limit. You can also time withdrawals to months when your other income is lower. Contact your state Medicaid office to learn how your income is calculated and when a withdrawal would cause you to lose coverage.

This guide is for general information only and is not medical, financial, legal, or other professional advice. For decisions specific to your situation, consult a qualified professional. See our Editorial Policy.