Ltc annuity

[taxea]

I have a client who had taxed retirement annuity transferred to a LTC annuity. Is the contribution to the LTC annuity tax deductible? Or would only the distribution, at a later time, be deductible on Sch A? This type of plan is new to me. Anyone know where I can research the tax consequences of this transfer? I know that LTC contributions are tax deductible but am not sure about this.

[Roland Slugg]

No, the transfer to the LTC annuity isn't deductible, because the buyer hasn't really paid for any LTC or for a LTC insurance policy. Instead, how they work is that if later distributions are used for long-term-care costs, the distributions are tax-free. To get that result, though, I believe the distributions must be paid by the insurance company that issued the annuity contract directly to the LTC provider. Presumably, this is how these contracts work.

The conversion of the old annuity over to the LTC annuity may have tax ramifications of its own. It might be a good idea to read up on such transactions. They are covered by Code §1035.

[Burke]

I have one client who has this benefit as a rider on a life insurance policy. And we determined it was not deductible either because it is not a qualified contract under the LTC rules. The benefit is the same as Roland describes.

[taxea]

Thank you both. That was my thinking. Roland I will research the code. Appreciate your help