3 Ways to Use IRA Money for LTC Planning

3 Ways IRA Assets May Be Used for LTC Insurance

Long-term care planning is often discussed in terms of premiums, policy features, and benefit amounts. For many retirees and pre-retirees, a central consideration is the source of funding.

For individuals with substantial IRA balances, this is often a key consideration. IRAs are frequently one of the largest sources of retirement savings, and in some cases can be used to fund long-term care insurance more efficiently than paying directly from cash flow. The tax treatment and outcomes vary depending on the approach used.

These strategies generally apply beginning at age 59½. In limited cases, legislation allows exceptions for younger individuals. Some inherited IRAs may also be eligible, depending on the situation.

Here are three ways IRA assets are commonly used in long-term care planning:

Strategy 1 — IRA-Funded Multi-Benefit Policy

This approach uses one policy that combines annuity value, life insurance, and long-term care benefits in a single contract. IRA or 401(k) dollars are distributed gradually over time to help fund the policy, rather than creating one large taxable withdrawal upfront.

Key features:

• Is funded with annual IRA withdrawals, which can count toward required minimum distributions (RMDs)
• Spreads taxable distributions over multiple years instead of triggering one large lump-sum event
• Combines annuity value, life insurance, and long-term care benefits in one policy
• Offers a guaranteed level premium

May be a fit for:
People who prefer an all-in-one policy structure and want a more predictable premium approach.

Strategy 2 — Immediate Annuity + Long-Term Care Coverage

This strategy uses IRA assets to purchase an immediate annuity. Annual distributions from the annuity are then used to help fund a separate hybrid long-term care, or traditional long-term care insurance policy. Because the annuity and the long-term care policy are separate products, this approach can provide greater flexibility in product design and carrier selection.

Key features:

• Uses an immediate annuity funded with IRA assets to help fund a separate LTC policy
• Spreads taxable IRA distributions over multiple years
• Allows the annuity and the long-term care policy to be selected independently
• Utilizing a hybrid policy may provide long-term care benefits, cash value, a death benefit, and guaranteed level premiums, depending on the policy design

May be a fit for:
People who want greater flexibility in product design and carrier selection while spreading taxable IRA distributions over time.

Strategy 3 — Annual IRA Distributions to Fund LTC Insurance

This approach uses annual IRA distributions to pay long-term care insurance premiums while keeping the overall IRA investment strategy in place. Rather than repositioning a large portion of IRA assets into a new product structure, it uses only the distributions needed to fund coverage. It can be used with traditional long-term care insurance, hybrid policies, or linked-benefit designs, depending on the goals of the policyholder. In some cases, it may also be coordinated with required minimum distributions.

Key features:

• Uses annual IRA distributions to fund long-term care insurance premiums
• Keeps the overall IRA investment strategy in place
• Can be used with traditional, hybrid, or linked-benefit policies
• Allows funding decisions to be adjusted over time

May be a fit for:
People who want maximum flexibility, prefer to keep most IRA assets invested, and want to fund long-term care coverage through manageable annual distributions.

The best way to use IRA money for long-term care depends on your tax situation, retirement goals, and the type of policy you’re considering. We can help you compare the options side by side.