IRAs provide income tax breaks, but the money in them doesn't get any special treatment by Medicaid. If you apply for Medicaid, IRAs in your name are counted as assets.
The fact that you would lose your tax break if you tapped into the IRA funds too early doesn't protect them from consideration by Medicaid.
Assets, including IRAs, can be removed from consideration by Medicaid in one of several ways. If you spend an asset or transfer it -- give it away -- to someone else more than 60 months before applying for Medicaid, it won't be counted in determining your eligibility. Within the 60-month period, you may spend the IRA funds on yourself and not have them counted for Medicaid eligibility. This may include spending it to repair or improve your home, as long as you -- or your spouse, if you're in a nursing home -- live in the home. That's because Medicaid doesn't count your home as an asset unless your equity in it is over $500,000 (up to $750,000 in some states). To find the exact equity cut-off in your state, go to an Internet search engine and enter your state's name plus the words "Medicaid eligibility." What you may not do within the 60-month period is simply transfer the funds to someone else for less than "fair value." In other words, you can't just give the money away to family or friends, or put the money in someone else's name.