How Does Medicaid Treat College Savings Funds?

Saving for college but needing to receive Medicaid is a complicated equation.

The answer “It depends” is not much of a comfort when considering how college savings accounts will be treated for Medicaid purposes.  However, it is, unfortunately, the most accurate answer. There are several factors that must be considered:

  • What type of account you used to set aside the college money;
  • How and when you funded the account; and
  • Whether you still have access to the money.

A recentnj.com article asks, “Will my college savings be counted for Medicaid?” If you can liquidate an account and access the money that you deposited, Medicaid will typically expect you to do so to fund your own care for as long as possible. Another challenge is that Medicaid will always penalize gifts. Odds are good that the funds you added to these college accounts are gifts.

MedicaidHowever, there may be an exception: if the account was funded prior to the 60-month lookback period, the applicant can’t be penalized for making a gift.

Let’s examine why the type of account is also important.

If the money was put into a 529 plan, the funds aren’t part of the donor's taxable estate, and the assets aren’t includible. However, if the funds are invested in an account “ITF” (“in trust for”) a grandchild, then the funds would be includible. It its calculations, Medicaid examines all assets in the name of the applicant. Assets held in 529 plans—although the donor's name may be shown as the participant—are deemed to be a gift, when the assets are transferred and, therefore, are no longer the donor's asset.

To be safe, grandparents who set up 529 plans for their grandkids should change the participant to the grandchild's parent or guardian. This entirely disconnects the donor's name with the account.

If the grandparent just added a grandchild's name on one of his savings accounts, then that would be includable. This is true even if it were completed more than 60 months earlier, because it wouldn’t be deemed to be a completed gift.

When it comes to the intersection of college savings and Medicaid, you may need to speak with an elder law attorney who will be able to review how the college savings assets are owned, and whether or not they’ll impact your Medicaid eligibility.

Reference: nj.com (September 19, 2018) “Will my college savings be counted for Medicaid?”

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