Funding LTC – Qualified Money

Heads will start exploding with this declaration, but it is a fact.  Qualified money can be used to fund long-term care. That money, however, will be taxed as ordinary income when it is distributed.  Simply, there is no provision in the Internal Revenue Code that allows for tax-free distributions from a qualified retirement plan such as an IRA, 401k, 403b, etc.

HOWEVER – there is an opportunity to turn non-Roth qualified money into a premium source for long-term care insurance premiums.  And, with tax season upon us, this might be a good time to consider the opportunity.

(If you are uncertain about the differences between a Roth and non-Roth plan, you can follow this link for information.) 

Remember there are rules that govern distributions from qualified retirement plans and the premise for using qualified money as a funding source is tied to those rules.  Simply, to avoid penalty for premature distribution, we do not want to consider taking money prior to age 591/2 unless it is from an inherited account. 

Additionally, there may be an advantage of using the strategy if the client is over age 73 and must take Required Minimum Distributions from their plan.   

It is all about leveraging dollars.  I like to think of this as an extension of the IRA Maximization strategy where we leverage the distribution into premium dollars and recover the monies take by taxes through the benefits of the insurance policy.  In this case, we will be using an asset-based long term care solution (Asset Care) rather than a straight life insurance policy.

Here is my self-serving product pitch.  OneAmerica Financial is the only carrier that offers a turnkey strategy that allows qualified money to fund an asset-based ltc policy – NO ONE ELSE OFFERS THIS STRATEGY!

Brains will melt over what I just said, but it is a fact. No other carrier offers a simple turnkey solution.  Sure, they might suggest writing an annuity and using it to fund their product, but it is not the same simple strategy.

Here is another cool thing about this strategy – both individual and joint Asset Care policies can be funded using this approach.  My IRA rollover can fund a joint policy for my wife and me!

And, if I am uninsurable, my IRA rollover can be used to fund her Asset Care policy.

Another opportunity is for nonspousal inherited IRAs where the SECURE Act requires liquidation within 10 years of inheritance. 

Consider this – According to the Congressional Research Service, the Federal Reserve’s Financial Accounts of the United States report said that as of December 31, 2022, there were over $37.8 trillion held in US retirement plans and accounts.  $26.3 trillion was in employer sponsored plans and $11.5 trillion sat in individual retirement accounts.

That is a boatload of money that needs to flow into the system.

When you are considering funding (premium paying) strategies, do not overlook the qualified money!