Using Qualified Funds for Long-Term Care Plans

May 19, 2016

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Step Three:
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DID YOU KNOW? We now have more ways to fund long-term care insurance plans.

Because of recent federal change from the Pension Protection Act, we now have more ways to fund long-term care insurance plans and many of them offer tax advantages that many people and their advisors are not aware of.

This month, I want to address using qualified funds which is money usually in a 401k or IRA that has not been taxed. Qualified funds can present a problem as you have to count the money you pull out each year as income. This means you have to pay tax on this money based on your current income tax rates. Therefore, pulling out large sums of qualified funds for any reason can push your tax bill up, but not for long-term care planning.

We now have a program which allows us to use a lump sum of qualified funds to set up a long-term care plan and stretch the tax liability out over 20 years. The client gets the benefit of the plan today, but will be taxed on the withdrawal over 20 equal installments. What this means is that each year for 20 years, the client will receive a 1099R which will also count towards the required minimum distributions (RMD’s) they will need to take out of their retirement accounts after the age of 70 ½.

A Popular Way To Fund Asset Based Plans

This is one of our most popular ways to fund asset based plans because the client can get up to a lifetime of protection and never lose a dime if they never need care. This allows many people to protect their family and their savings from the consequences of an extended health care situation and enjoy tax savings along the way.

See our client of the month for how these plans work or contact us with questions!

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