Are IRAs Considered an Asset?

An Individual Retirement Account is a savings plan designed to give tax-deferred growth for the account holder. The IRS has strict guidelines regarding the management of IRA assets, including contributions and distributions. Funds can be taken out at age ​59 1/2​ and beyond without an IRS-imposed early distribution penalty. While the IRA is an asset, it is not always an accessible one. It is also a highly regulated asset, subject to many rules and guidelines.

When Is an IRA an Estate Asset?

IRAs are not typically included in an estate since there is usually a beneficiary attached to the asset. This arrangement means that an IRA goes directly to the beneficiary, completely bypassing a will or probate.

The IRA is considered a part of the owner's taxable estate if there is no designated beneficiary upon death, or if the estate is listed as the beneficiary. This means that the value of the IRA is added to the gross estate value and considered for estate transfer taxes. The IRA with no designated beneficiary can get hit not only with estate taxes upon death, but also with income taxes for distributions made from the IRA upon death. The best way to avoid this scenario is to ensure that a proper beneficiary is designated on the IRA – including any successor beneficiaries.

Be aware that the SECURE Act eliminated the "stretch IRA" after ​2019​, meaning that the IRAs inherited by beneficiaries other than a spouse must be fully distributed within ten years after the passing of the account holder. Previously, non-spouse inheritors were allowed to spread out distributions across their life expectancy, hence the "stretch."

Can an IRA Be Used as Loan Collateral?

The Internal Revenue Service is very clear on the use of an IRA as collateral for a loan; it is strictly prohibited. This means a brokerage IRA cannot be used as an asset for an options account. It is also prohibited to leverage the IRA in any way, meaning by writing a note as collateral in a private bet.

Whether the IRA owner or a spouse engages in prohibited transactions, the result is the same. The entire IRA is distributed, taxed and penalized. Keep in mind that a mortgage or auto lender may look at IRA assets, but this is not an asset that can be used to obtain a loan.

Is an IRA Vulnerable to Creditor Claims?

IRAs are protected assets under federal law. While every state has slightly different protection values, the base value of ​$1 million​ is protected from creditor claims, judgments and bankruptcy. This benefit helps protect the federal government from having insolvent individuals rely on federal resources at a later date because retirement assets are exhausted. So while a debt claim representative may try to bully you into using retirement assets to pay off a debt, you are not required to, and they are not able to place a judgment on your IRA.

How Can an IRA Impact Medicaid?

Medicaid is the general term for joint federal and state health programs aimed at lower-income families and those who qualify. To qualify for Medicaid and certain other federal low-income aid programs, your assets must not exceed certain limits. Each state has specific eligibility guidelines for Medicaid that typically include age, citizenship, disability, residency, household composition and income or assets.

For example, filing and being approved for Medicaid in California (known as Medi-Cal) requires less than ​$2,000​ in countable assets. Cash, bank deposits, brokerage assets, real estate and retirement distributions can all be considered countable assets.

Countable assets are those assets and resources that are included by Medicaid as net worth. Non-countable assets are considered exempt from net worth, such as a single car, household items, or a burial plot. IRAs may be countable based on individual state eligibility criteria. Some people must "spend down" assets in order to qualify for Medicaid.