|I'm putting money into a 529 plan for my grandchild. But
are the 529 assets subject to Medicaid spend-down requirements?
Very possibly. Unless legislation in your state exempts 529 plans from
Medicaid rules, you'd be wise to assume that these assets will be subject to
the state's grasp.
To be eligible for Medicaid, most states require that your
assets and monthly income fall below certain limits. A state may count the
assets and income that are legally available to you for paying bills. You can
make assets unavailable by giving them away or by holding them in certain
trusts. In some cases, though, such transfers may create a period of
ineligibility before you can collect Medicaid.
The potential problem with 529 plans is that your
contributions are "revocable." This means that you can contribute money to your
grandchild's 529 account today, and then take it back later (subject to income taxes
and a penalty). Since it's possible for you to get your hands on the
money, your state Medicaid authorities may consider your 529 gift to be a
countable asset when considering your eligibility for Medicaid. That might
prevent or delay your eligibility for Medicaid.
In addition, your state has the right to "look back" at your
finances 60 months from the date you apply for Medicaid. Contributions you've
made to your grandchild's 529 account within this period may delay your
eligibility for Medicaid.
You may want to consult a Medicaid planning attorney and
keep abreast of changes in your state's laws with respect to Medicaid and 529
Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about 529 plans is available in each issuer's official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits.