Seniors are unfamiliar with the no-cost long-term care insurance planning technique

Millions of American seniors who currently own an annuity are unaware of the IRS-approved planning technique that also allows them to benefit from 100 percent tax-free benefit payments in the event they need long-term care (LTC).

Technical planning uses a special provision of the tax code, an interchange of Section 1035. The law, passed by Congress, was designed to encourage more Americans to plan for the real risk of needing care at some point in their life.

Approximately eight million Americans have some form of long-term care insurance that covers the costs of LTC. However, millions already have an annuity designated as their “hypothetical” funds. The latest data compiled by various industry research groups, including LIMRA, reveals that about $ 2.8 trillion is invested in unqualified annuities.

Simply put, the law now allows an annuity owner to reuse their current annuity on one that meets IRS criteria. The new annuity continues to grow in value on a tax-deferred basis.

The reasons for considering a change are multiple. For many, there can be significant tax savings should the need for long-term care arise at a future date. Money can be withdrawn from an annuity to pay for long-term care. However, there may be income tax consequences. That means the risk of facing a tax bill at a time when funds are critically essential.

An annuity that meets new criteria can continue to increase in value. However, all funds withdrawn to pay for an LTC need are received completely free of income tax.

Second, many of the new annuities created to provide consumers with both tax-deferred annuity growth and tax-free long-term care benefits also offer some rather unique financial planning opportunities. An example shown in the just-released 1035 Exchange Long-Term Care Planning Guide explains how an existing annuity valued at $ 200,000 could be reused in a plan that provides both spouses an unlimited long-term care benefit. or for life. of $ 5,000 per month. If neither spouse needed long-term care, the annuity would eventually pay the designated beneficiary $ 202,000 upon the death of the second spouse.

Sold by many financial advisers and investment professionals, the new forms of annuity contracts offer a variety of benefits and options. Because some professionals may only favor or offer annuities from one company, experts advise working with a 1035 exchange specialist who is familiar with various companies. Additionally, implementing an exchange incorrectly can result in tax consequences, something that a knowledgeable and experienced professional should be competent to help you avoid.