A question that I often get asked is whether you can fund Annuity Care I or Indexed Annuity Care with qualified money.
The answer is yes but …
You need to pay attention to this because it is a big ole but.
When qualified money goes into Annuity Care I or Indexed Annuity Care, it remains qualified. That means that the distributions will be taxed as ordinary income when distributed. Whether that distribution is for long term care or income, it will be taxed.
So, what’s the point of allowing qualified money?
It is all in the continuation of benefits rider (COB). In order to include the COB, it must be funded from outside the rollover and from nonqualified money.
What you are doing with this approach is identifying the pool of assets that are intended to be utilized to fund long-term care support and services. Along with that, you are building in a stop-loss point via the COB.
Here is how it would work using Annuity Care 1.
Let’s say that we have someone who is 70 years old with an IRA with $530,000 of value that will not be part of their income strategy. They elect to deploy the money into Annuity Care. In order to execute this strategy, she will need to roll $350,000 into Annuity Care I and $180,000 into a Single Premium Immediate Annuity that will generate an annual distribution of $7,093 to fund the COB which includes 3% compound inflation.
The distribution for the SPIA will taxed as ordinary income and, when use to purchase the COB, may be a deductible healthcare expense if she itemizes her return and meets the criteria for the age-related LTC deduction.
Annuity Care will continue to grow until a claim occurs. Once that happens, after a 7 day elimination period, benefits are available. Remember, the first 36 months will be taxable distributions due to the IRA status of the base policy. Once the annuity is exhausted, tax-free distributions from the COB will commence.
Here is how the benefits would look if a claim were to occur at age 80 (guaranteed):
Y10 – age 80 – up to $13,982/mo. ($167,784 annual) taxed as ordinary income
Y11 – age 81 – up to $14,353/mo. ($172,237 annual) taxed as ordinary income
Y12 – age 82 – up to $14,733/mo. ($176,790 annual) taxed as ordinary income
Y13 – age 83 – up to $17,109/mo. ($205,308 annual) tax-free
Y14 – age 84 – up to $17,622/mo. ($211,464 annual) tax-free
Y15 – age 85 – up to $18,151/mo. ($217,812 annual) tax-free
Total taxable benefits paid from base = $516,811
Total tax-free benefits paid from COB = $634,584
Total benefits paid = $1,151,395
Starting value of IRA = $530,000
So, here you have it, a self-funded plan utilizing qualified money and a stop-loss strategy.
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For more information, you can contact the Care Solutions Sales Desk at (844) 623-4251 or give me a shout.
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