Is there a way to fund LTC from an IRA account tax-free? Taxpayer has $150,000 in IRA and wants to purchase a whole life policy with LTC benefit. Plan would be to transfer the IRA to purchase 10-year annuity. Problem is taxpayer will get 1099-R each year from the annuity company showing $15,000 taxable. Anyone see a way to accomplish this without incurring income tax bite? Taxpayer is 62 so 10% penalty is not an issue.
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I have seen some life insurance agents talk about it but I think the policy has to be a special type with transfer allowed internally without triggering a taxable event.Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR -
In the "Long Term Care" chapter from TheTaxBook Soc Sec & Medicare reference, it talks about annuities for Long Term Care. Since premiums for qualified LTC policies are deductible to some extent as medical expenses, maybe that provides some offset for the taxability of the retirement plan distributions.
After all, the distributions one way or another are going to be taxable some day, unless they go straight to a qualified charity.
"Key things to consider before purchasing a deferred long-term care annuity include:
• If the long-term care fund is not used, it can be passed on to heirs.
• The annuity may not be enough to pay for long-term care expenses.
• The long-term care portion of the annuity may satisfy the requirements for a tax-qualified long-term care policy.
• The effect that annuities can have on taxes varies based on the policy.""You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe HowardComment
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As was already mentioned, annuities can provide a number of benefits. They have a cash value based upon regular market performance, they can have a guaranteed lifetime retirement benefit which is based upon the higher of market performance or some fixed interest rate (usually 5% if held long enough), a death benefit which is equal to the original contribution amount regardless of current cash value, and in some cases a long term care benefit. It all depends on the particular product. Usually the ones with more benefits have a lower retirement benefit guarantee. You can purchase annuities through an IRA rollover tax free, so tax is only paid when distributions are made from the annuity. The down side is annuities have high fees which eat into the cash value. So they are not so good if your intention is to pass the cash value to beneficiaries at death. For those of us who think our kids should earn their own living, annuities are great.Comment
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