Long-term care is a pressing issue for many middle-income individuals who are concerned about the potential costs they may face in the future. With the high price tag associated with long-term care services, such as nursing homes, assisted living facilities, and home care, it’s essential to have a plan in place to cover these expenses. However, for those who lack the financial resources to pay for long-term care insurance premiums, the SECURE 2.0 law of 2022 may offer a solution.
According to the U.S. Department of Health and Human Services, approximately 70% of people over the age of 65 will require assistance with daily activities at some point in their lives. This care can be incredibly expensive, with the median cost of a private room in a nursing home exceeding $116,000 per year. Medicare does not typically cover long-term care costs, and Medicaid eligibility is often limited to those near the poverty level. As a result, many older Americans must rely on their savings or purchase long-term care insurance to prepare for potential expenses.
Brian Gordon, president of Gordon Associates, a long-term care insurance brokerage, suggests a strategy for covering long-term care insurance premiums using funds from an IRA. Under the SECURE 2.0 law, beneficiaries of an inherited IRA must liquidate the account within 10 years of the original owner’s death. To avoid this requirement, individuals can withdraw funds from their IRA to purchase an annuity that will cover long-term care insurance premiums for a specified period.
This approach, known as a hybrid policy, allows policyholders to receive tax-free long-term care benefits while providing a death benefit to their heirs. By transferring funds from an IRA into an annuity to fund a whole life insurance policy with a long-term care insurance rider, individuals can ensure that their premiums are paid for a set period. This strategy offers a way to address the financial challenges of long-term care planning while also providing peace of mind for the future.
For those who prefer not to withdraw a large sum from their IRA at once, an alternative option is to make annual withdrawals over a 10-year period to purchase a hybrid policy. This approach allows individuals to spread out the cost of premiums while still benefiting from the coverage provided by the policy. While there may be tax implications for early withdrawals from an IRA, waiting until later in life to purchase a long-term care policy could result in higher premiums or potential denial of coverage due to health issues.
Ultimately, using an IRA rollover to pay for long-term care insurance premiums may not cover all potential long-term care costs. It’s important to consider additional expenses that may arise and plan accordingly. By exploring options such as hybrid long-term care policies and understanding the implications of using retirement funds for insurance premiums, individuals can take steps to protect themselves and their loved ones against the financial burden of long-term care.