Step-by-Step How To Leverage Your IRA For Long-Term Care Insurance

In my most recent blog, (Leverage Your IRA To Pay For Long-Term Care Insurance And Benefit Your Heirs), I promised I would provide a guide to help readers take steps on their own behalf for rolling an IRA into a life insurance policy with long-term health care features. As promised, here we go.

There may be other ways to go about this, but this is one option that you may be able to accomplish on your own. If you need guidance or further assistance, please contact our office.

What you will want to do when considering your long-term health care, is to convert your IRA into a long-term care insurance policy with a tax-qualified annuity.

If you invest in a tax-qualified annuity that makes internal distributions to an insurance carrier, you can indirectly pay for long-term care coverage using IRA money without additional tax penalties. Here’s how the process works:

Step 1: Apply for 20-pay Life Insurance with Long Term Care Features

Apply for a 20-pay life insurance plan with an LTC rider, which can accelerate the death benefit to pay for long-term care. This policy will be funded with tax-qualified annuities that make annual distributions to the insurance policy over a 20-year period. After you apply, complete the underwriting process, and receive approval, you will be given a quote for the annual premiums required for this plan. The premiums may be higher than those for term insurance, but limited-pay plans offer lifetime security.

Step 2: Apply for IRA-based Annuity Plans to Fund The Policy

The second step is to determine the up-front cost of an IRA-based annuity where the annual dollar amount of income is the same as the insurance premiums, over a period of 20 years. Apply for this annuity type and include instructions for the company to directly credit your 20-pay life insurance plan with the annual gains from the annuity.

Step 3: Use a Direct Transfer of IRA Funds For Annuity Premiums

Directly transfer funds from your IRA to purchase your 20-year annuity. By paying an equal dollar amount directly into your life insurance policy, this annuity will fund your insurance coverage and keep it active for 20 years, after which the LTC insurance policy is paid in full.

You will receive IRS tax form 1099-R from the annuity company every year on the amount of taxable IRA money moved into the life insurance policy. While you still pay income tax on this amount, the payout and benefits from the policy will be tax-free for you and your beneficiaries. After you’ve made premium payments over a 20-year period, the death benefits will apply for your entire lifetime.

For more in-depth conversations about leveraging your personal finances for long-term care or to discuss the option of an overall estate and retirement plan that includes long-term care, contact our office.

Looking to find an experienced estate lawyer in the Georgia area who is skilled in asset protection and estate plan preparation? Shannon Pawley is an attorney in Georgia with expertise in estate planning and asset protection. Shannon can provide assistance with creating an estate plan to include making a will and how to establish a trust properly. If you have questions about asset protection or questions about making an estate plan, reach out to Shannon and she will be glad to help answer all the estate planning questions you might have!

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