Question: What does the Pension Protection Act do for deferred annuities?
Answer: Starting on January 1, 2010, cash value withdrawals from specific annuity contracts used to pay for qualifying long-term care expenses or to pay qualifying long term care insurance premiums, are no longer taxable income but considered as a reduction of cost basis. And, benefit payments from long-term care insurance riders are also not taxable.
“As a reduction of cost basis” means that distributions from the policy are non-taxable and reduce the owner’s cost basis in the contract (but not below zero).
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