New Simplified Rules for 2026 IRA Treatment Under Medicaid: What New York Applicants Need to Know
By Frank E. Hemming III, Esq., Partner
If you are applying for Medicaid in New York and own an IRA or other retirement account, recent guidance from the New York State Department of Health represents a meaningful and welcome shift.
For years, Medicaid applicants were often required to “maximize” withdrawals from IRAs, taking out the largest possible payment available, as a condition of eligibility. This created confusion, forced higher taxable income, disrupted retirement planning and led to less funds being saved for applicants and their families.
That requirement is now gone.
Under new guidance issued on December 23, 2025, New York no longer requires counties to force Medicaid applicants to maximize IRA distributions in order to exempt the account from being treated as a countable resource.
Instead, the rules are now clearer, simpler, and more consistent with federal policy.
The Key Takeaway
- IRAs no longer need to be “maximized” to be exempt
- Required Minimum Distributions (RMDs) calculated using IRS tables qualify as “periodic payments”
- This applies to all Medicaid applicants, including those with Partnership long-term care insurance policies
What matters now is whether the retirement account is in “payout status.”
Understanding “Payout Status”: The New Line in the Sand
Under the new rules, Medicaid treatment of an IRA depends on one question:
Are you receiving regularly scheduled periodic payments from the account?
If the IRA is in payout status:
- The monthly payment is counted as income
- The principal balance of the IRA is NOT counted as a resource
- The payment amount does not have to be the maximum available
- RMDs using IRS tables qualify
This is true regardless of how often the payments are made (monthly, quarterly, annually, etc.).
If the IRA is not in payout status:
- The account balance is treated as a countable resource
- The value of the asset is what you can currently withdraw
- Ordinary income taxes are not deducted when calculating value
What This Means for Nursing Home Medicaid and NAMI
The new guidance also eliminates another long-standing concern.
Previously, Medicaid applicants or recipients that were required to take maximized IRA payments would have an increased amount of Net Available Monthly Income (NAMI), which would have to be paid to the nursing home.
That is no longer the case.
Under the new rules:
- Applicants cannot be required to maximize retirement income
- Failure to take maximum payments cannot be penalized
- This applies to post-eligibility income calculations for nursing home care
This change significantly reduces risk for applicants who want predictable income rather than increased forced withdrawals.
Timing Matters: Reporting Changes
If you change how your IRA is paid out, Medicaid eligibility may change as well.
- Changes take effect the month the change occurs
If changes are reported late, Medicaid districts may retroactively redetermine eligibility. However, retroactive adjustments tied to the eliminated “maximum payment” requirement are limited to changes occurring on or after June 4, 2025.
Why This Change Is So Important
For Medicaid applicants, this guidance brings:
- Less forced income
- Better tax control
- More predictable planning
- Consistency with IRS retirement rules
- Reduced administrative fights with counties
Most importantly, it allows retirement accounts to function as they were intended—to provide steady income, without undermining Medicaid eligibility.
The Bottom Line
New York’s updated Medicaid guidance finally aligns retirement planning with common sense.
If your IRA is paying out regularly, even at the IRS-required minimum, it can now be treated as income instead of an asset, without forcing you to drain the account unnecessarily.
That said, the distinction between income and resources remains critical, and small decisions about payout timing or structure can still have large consequences.
If you or a loved one is applying for Medicaid, especially for long-term care, this is an area where careful planning and professional guidance still matter more than ever.
