Long Term Care Annuities and The Pension Protection Act
Long Term Care Annuity | Annuities with Long-Term Care Benefits
If you own a nonqualified annuity funded with after-tax dollars, converting to a long term care annuity could provide you significant tax advantages. Thank the Pension Protection Act of 2006 for this major tax saving opportunity.
Nonqualified deferred annuities with long-term care insurance riders are tax-qualified LTC insurance plans. So the withdrawals from these “LTC annuities” are income-tax free, provided the withdrawals are for qualified long-term care. This allows you to use the cash value of your existing annuity to cover the cost of long-term care insurance premiums, without experiencing a taxable event.
1035 Annuity Exchange Rules
Plus, the Pension Protection Act allows annuity owners to make tax-free 1035 exchanges into appropriate hybrid long-term care annuities. This means an annuity owner can do a tax-free 1035 exchange and move the cash value from their annuity into a single-premium qualified LTC insurance annuity.
Hybrid LTC annuities offer their owners tax-deferred growth and the ability to index to the S&P 500. Best of all, they provide the ability to make sizable tax-free withdrawals for long-term care expenses. Similar tax advantages can apply to long-term care life insurance policies and we’ll cover these long-term care hybrid products in another article.
Besides the tax advantages of making a 1035 tax-free exchange from an existing annuity contract into a LTC hybrid annuity, a long term care annuity may also provide a much larger pool of money to cover potential LTC expenses.
Is a Long Term Care Annuity for You?
In addition to making tax-free 1035 exchanges, many people fund annuities using cash from a bank certificate of deposit or a qualified annuity they own. And if your health prevents you from qualifying for traditional LTC insurance, a hybrid annuity may be a great option as most have less stringent health underwriting criteria.
Before you elect to pay for long term care costs from your own pocket, please contact us for a no-obligation consultation and quote comparison.
Request A Long Term Care Annuity Quote!
LTC Insurance Consultants and Acacia Insurance Services, Inc. does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers before engaging in any transaction.