Press release
Seniors With Annuities Can Benefit From Long-Term Care Insurance Planning Strategy
Seniors with annuities can benefit from planning strategy
A non-qualified annuity is funded with after-tax dollars. The money used to purchase the annuity has already been taxed by the Internal Revenue Service. With non-qualified annuities, the earnings grow tax-deferred until withdrawals are made. At that time, the earnings portion of monies withdrawn are subject to income taxation.
According to the American Association for Long-Term Care Insurance, the majority of seniors purchased their non-qualified annuity to be available in the future should a financial need or emergency arise. "This includes the very real possibility of needing long-term care," explains Jesse Slome, director of the national advocacy organization. "Funds withdrawn from a non-qualified annuity to pay long-term care costs could then be subject to income taxation by both the IRS and state tax entities."
To avoid being subject to such taxation, seniors currently owning a non-qualified annuity can consider a little-known planning strategy. "There are now non-qualified annuities that meet IRS specifications that permit tax-free withdrawals made for long-term care costs," notes Slome. "One can do a 1035 exchange from an existing annuity into one that meets the IRS requirements."
In addition to the potential elimination of potential tax liabilities, the new long-term care annuity can double or triple the available pool of funds for long-term care expenses. "A couple both age 70 could 1035 exchange their current $150,000 annuity for one that would pay as much as $460,000 at age 90," Slome points out. "The strategy gives seniors added financial leverage to plan for the risk of needing long-term care and the added benefit is avoiding income taxation on the withdrawn funds."
Not all non-qualified annuities that are available offer this combination of benefits. "There are very specific requirements but a few of the larger companies have taken the steps to comply," Slome shares. "It's important to get the information from a knowledgeable long-term care insurance professional who is familiar with these policies as well as making 1035 exchanges," Slome recommends.
The strategy is not for everyone according to experts. The maximum age to undertake a 1035 exchange for this purpose is generally 79 to 80. While health qualifications are generally easier to meet than for traditional long-term care insurance, health status is still an issue. Finally, most experts share that your current non-qualified annuity should be worth at least $75,000 or more to make the switch worthwhile.
The American Association recently posted additional information regarding the planning strategy. To learn more, go to https://www.aaltci.org/tax-tips-annuity-ltc/.
AALTCI
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Westlake Village, CA
The American Association for Long-Term Care Insurance advocates for the importance of planning for the real risk of needing long-term care. The organization posts relevant information such as the 2024 Long-Term Care Insurance Price Index and other statistics and data at https://www.aaltci.org/long-term-care-insurance/learning-center/ltcfacts-2024.php.
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