Senate Proposal Could Make It Easier to Fund LTC Insurance

Senate Proposal Could Make It Easier to Fund LTC Insurance

If Congress manages to pass a new bill, currently being worked up in the Senate, tax-and penalty-free withdrawals would be allowed from retirement accounts to fund long-term healthcare insurance.

If enacted, the new rules would apply to people age 50-59.

The bill, sponsored by Sen. Patrick Toomey (R-PA), would enable a withdrawal from retirement funds totaling up to $2,000 with no tax liability, as long as the funds are used to pay LTC premiums and related insurance policy expenses.

Insurance is currently an underutilized asset in paying for LT care: one expert estimates that less than 4% of nursing home costs related to Alzheimer’s and other cognitive diseases are paid via insurance benefits.

The Senate proposal would allow no-penalty withdrawals from 401(k) accounts and IRAs. Right now, the average LTC premium for a 55-year-old male is just slightly over $2,000; for females, who live longer and therefore must pay more, the premium is $2,700. The $2,000 withdrawal limit in the proposed bill should provide solid stimulus for purchasing LT care policies. That’s what its Senate sponsors, LT healthcare advocates and insurance industry players are hoping.

Estimates vary, but between half and three-quarters of Americans who live past 65 will eventually need long-term healthcare, at home or in a dedicated facility. The costs are already elevated, estimated at around $100,000 per year – yet the population is noticeably under-insured when it comes to providing for LT care. High annual premiums are the likely culprit.

By waiving the usual 10% early withdrawal fee and adjusting the tax code to allow a no-penalty withdrawal to fund LTC insurance, the bill’s sponsors hope to encourage people under 60 to buy proper coverage. The age limit provide positive leverage: most potential customers are still healthy, keeping their premiums, although high, within manageable limits. This could particularly be the case if the legislation ever reaches the president’s desk.

For more information, please read:
Bill Will Provide Tax-Free Retirement Withdrawals To Boost LTC Insurance Purchases | Financial Advisor

Gift and Estate Tax Exclusion: Latest Regulation from the IRS Tax Deferral: Sound Retirement Planning or Ticking Time Bomb?