Q&A – tax free annuity for LTC

Question: Can a “regular” deferred annuity have withdrawals made from it for LTC expenses, and have those withdrawals treated as tax-free distributions under the PPA?

Answer: Every written interpretation indicates that an annuity policy must include the language which makes it qualifying LTC insurance under IRC Section 7702B to allow for withdrawals used for LTC expenses or LTCi premium to be considered tax-free as a reduction of cost basis.  Based upon what our Advanced Sales team has shared, this would preclude a “regular annuity” (that is, an annuity with standard free withdrawal or simple nursing home waiver language) from receiving the benefits of the PPA.

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