How Required Minimum Distributions Affect Medicaid Planning

You’ve spent decades saving for retirement. Your IRA or 401(k) has grown steadily, providing peace of mind for your future. But here’s a reality many families face: those same retirement savings can become a significant obstacle when long-term care becomes necessary.

Required Minimum Distributions (RMDs) are a critical factor in Medicaid planning that often catches families off guard. At Berg Bryant Elder Law Group, we help Northeast Florida families address this challenge before it becomes a crisis.

What Are Required Minimum Distributions?

Once you reach age 73, the IRS requires you to start withdrawing money from traditional retirement accounts—IRAs, 401(k)s, 403(b)s, and similar accounts. These mandatory withdrawals are called Required Minimum Distributions.

The amount you must withdraw each year is calculated based on your account balance and your life expectancy. The older you get, the larger the percentage you’re required to withdraw annually.

For example, at age 73, you might need to withdraw about 3.8% of your account balance. By age 80, that increases to around 5.3%. By age 90, you’re withdrawing approximately 8.2% annually.

Here’s the problem: these withdrawals count as income for Medicaid eligibility purposes, even if you don’t need the money.

The Medicaid Income Dilemma

Florida’s Medicaid program for nursing home care (the Institutional Care Program or ICP) has strict income limits. In 2026, your gross monthly income must be below $2,982 to qualify.

Let’s look at a real-world scenario:

Sarah is 78 and needs nursing home care costing $13,000 monthly. She receives $1,800 in Social Security and has $400,000 in a traditional IRA. Her RMD for the year is approximately $20,000, which translates to $1,667 per month.

Total monthly income: $1,800 (Social Security) + $1,667 (RMD) = $3,467

Sarah exceeds Florida’s Medicaid income limit by $485 per month. Without proper planning, she cannot qualify for Medicaid to help pay for her care—despite the fact that her actual liquid assets and income before RMDs would have made her eligible.

The nursing home bill continues while her IRA balance dwindles. This creates a devastating financial squeeze where she’s spending down retirement savings to pay for care she can’t quite afford, but earning too much to qualify for Medicaid assistance.

Why RMDs Create Unique Medicaid Planning Challenges

Unlike some forms of income you might have control over, RMDs are mandatory. You can’t simply decide not to take the distribution. Failing to withdraw your RMD results in a steep penalty—25% of the amount you should have withdrawn (reduced to 10% if corrected within two years).

Additionally, you can’t roll an RMD back into a tax-deferred account. Once it’s withdrawn, it counts as income for that year.

This creates a Catch-22: you must take the distribution, it counts as income, and that income can disqualify you from Medicaid—even though you’re simultaneously spending down assets to pay for care.

The Qualified Income Trust Solution

For Florida residents whose income exceeds the Medicaid limit due to RMDs or other income sources, a Qualified Income Trust (QIT)—also called a Miller Trust—provides a legal solution.

A QIT is a special type of irrevocable trust designed specifically to help people qualify for Medicaid when their income is too high. Here’s how it works:

Your excess income (the amount above the Medicaid limit) gets deposited into the QIT each month. The trust then distributes those funds according to strict rules—primarily to pay your patient responsibility amount to the nursing home.

Because the income goes into the trust rather than directly to you, it doesn’t count toward your personal income for Medicaid eligibility purposes.

Using Sarah’s situation above: her $485 monthly excess income would be deposited into a QIT. This brings her countable income down to the $2,982 Medicaid limit, allowing her to qualify for benefits.

The QIT must be carefully structured and administered. The state of Florida must be named as the beneficiary for any funds remaining in the trust after your death. Only certain types of expenses can be paid from the trust, and the trustee (the person managing the trust) must follow specific rules.

Planning Ahead: Strategies to Minimize RMD Impact

The best time to address RMD issues is before you need Medicaid. Here are strategies we discuss with clients:

Roth conversions before age 73. Converting traditional IRA funds to a Roth IRA before RMDs begin eliminates future mandatory distributions. Roth IRAs don’t have RMDs during the owner’s lifetime. Yes, you’ll pay taxes on the conversion, but you gain control over when and whether to take distributions later.

Qualified charitable distributions. If you’re charitably inclined and at least 70½, you can donate up to $108,000 annually directly from your IRA to qualified charities in 2026. These distributions count toward your RMD but aren’t included in your taxable income—and don’t count toward Medicaid income limits.

Strategic spending before care is needed. For some families, using IRA distributions for necessary expenses (home modifications, prepaid funeral arrangements, paying off debt) before long-term care becomes necessary makes sense. This reduces the IRA balance and future RMDs while addressing real needs.

Annual reviews of your situation. Life expectancies, account balances, and Medicaid rules all change. Regular reviews ensure your plan stays current.

When Immediate Care is Needed

What if you need nursing home care now, and RMDs are already an issue?

First, a QIT can be established relatively quickly—often within a few weeks. While you’ll need legal assistance to ensure it’s properly structured, it doesn’t require years of advance planning like some Medicaid strategies.

Second, the timing of your Medicaid application matters. If you turn 73 in December but need care in January, the timing of your first RMD (which can be delayed until April 1 of the following year) might offer some planning opportunities.

Third, remember that RMD income, while it affects eligibility, also contributes to your patient responsibility—the amount you pay toward your care each month. Higher income means a higher patient responsibility, but Medicaid still covers the difference between what you can pay and the nursing home’s cost.

Roth IRAs and Medicaid Planning

Here’s an important distinction: Roth IRAs don’t have RMDs during the owner’s lifetime. If you have significant Roth IRA assets, you control whether and when to take distributions.

However, Roth IRA balances still count as assets for Medicaid eligibility purposes. The $2,000 asset limit for single individuals applies to both traditional and Roth IRAs. But the income planning is simpler because you’re not forced to take distributions.

Getting the Planning Right

Medicaid planning with retirement accounts involves coordinating multiple factors: income limits, asset limits, RMD calculations, trust requirements, and tax implications. One misstep can delay eligibility or create unexpected tax consequences.

At Berg Bryant Elder Law Group, we work with families throughout Northeast Florida to develop Medicaid plans that account for RMDs and other income sources. We help establish Qualified Income Trusts when needed, coordinate timing strategies, and ensure all documentation is properly prepared.

If you’re facing long-term care costs or want to plan ahead, don’t let RMDs derail your Medicaid eligibility. Visit our website to schedule a consultation with our Florida Board Certified Elder Law Attorneys.

This blog post is for informational purposes only and does not constitute legal or financial advice. Medicaid rules and RMD requirements change frequently. Consult with qualified professionals to discuss your specific situation.