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Long Term Care Planning and IRAs

by | Jun 15, 2026 | Medicaid Planning

The cost of long-term care in New Jersey has reached levels that most families are simply not prepared for. Over the past five years alone, costs have risen dramatically, and they show no signs of slowing down. A nursing home in New Jersey now costs between $14,000 and $16,000 per month. Assisted living facilities run between $10,000 and $14,000 per month. Even a home-health aide, often seen as the more affordable option, costs between $8,000 and $11,000 per month.

At those prices, very few families can afford to pay privately for any meaningful period of time. A single year in a nursing home can cost nearly $200,000. Two years can wipe out a lifetime of savings. That is why so many New Jersey families turn to Medicaid, and why long-term care planning has become one of the most important things a family can do.

The Five-Year Look-Back: What It Means for You

Medicaid is a government program that can pay for long-term care but qualifying for it requires careful planning. One of the most important concepts in Medicaid planning is the five-year look-back period. When you apply for Medicaid, the government looks back five full years at all of your financial records to determine whether you have made any “uncompensated asset transfers,” that is, whether you have given anything away without receiving fair market value in return.

For example, if you apply for Medicaid in June 2026, the government will examine every financial transaction going back to July 2021. What are they looking for? Gifts. Transfers. Below-market sales. If you gave your car away, that is a gift equal to the car’s value. If you sold your car worth $10,000 to your son for $5,000, that is a $5,000 gift. If you transferred your home worth $500,000 for one dollar, that is a gift of $499,999, and it will result in a period of Medicaid ineligibility calculated based on the value of what you gave away.

The Irrevocable Trust: A Powerful Planning Tool

For many families, a well-drafted irrevocable trust is one of the most effective tools available for protecting assets from long-term care costs. By transferring assets into an irrevocable trust more than five years before applying for Medicaid, those assets are generally no longer counted as available resources, and they are protected. An irrevocable trust also provides a benefit that many families overlook: it protects your assets not only from the nursing home, but from your children’s problems as well. If a child is sued, goes through a divorce, or passes away before you, assets held in a properly structured irrevocable trust are generally shielded from those events. It is a form of planning that protects the family on multiple levels simultaneously.

The IRA Problem: A Challenge Many Families Face

There is one significant challenge that has become increasingly common: many people have a substantial portion of their wealth tied up in qualified retirement accounts: IRAs, 401(k)s, 403(b)s, and qualified annuities. These accounts present a real obstacle in Medicaid planning. Unlike a bank account or a home, you cannot simply transfer an IRA into an irrevocable trust. To do so, you would first have to withdraw the money from the IRA, and when you do that, you owe income tax on every dollar you withdraw. For someone with $500,000 in an IRA, that tax bill can be enormous. Most families are unwilling, and often unable, to absorb that cost.

The result is that non-qualified assets—bank accounts, real estate, brokerage accounts—can often be protected through trust planning very effectively, while qualified retirement assets present a much harder problem that requires specialized strategies. If you have significant retirement account assets, it is especially important to consult with an elder law attorney who understands both the Medicaid rules and the tax implications.

Don’t Wait Until It’s Too Late.

Long-term care planning is not something to put off. Every year you wait narrows your options. If you or a loved one would like to understand your options under New Jersey Medicaid law, please call our office for a consultation.

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