One America/State Life offers this hypothetical case study. It details an innovative way to pay provide funds for long term care expenses while also creating a tax write-off under the Pension Protection Act.
While many seniors own deferred annuity contracts, some are unsure what to do with underperforming or mature contracts. If you would like to discuss your personal situation, please contact us.
A case-study example:
Client: Marjorie Jones, age 71
Status: Married to husband Ned (age 71) Situation: Marjorie is owner/annuitant of a non-qualified annuity out of surrender charges purchased. The current cash value is $103,500 (the cost basis/premium paid was $65,000). Their annuity has not been used for income, and based on cash flow projections, will not be required for income. The couple has no long-term care coverage, but has identified this annuity as a source should expenses be incurred.
Option 1: Keep the annuity where it is
Option 2: Move to Annuity Care ® (or other LTC Annuity Policy)
Withdrawal example 1:
Short LTC claim situation:
What if Marjorie (or Ned) had a $3,000 per month LTC expense for six months? How would this impact:
1. Their existing annuity for the short term:
Any amount of money that comes out of their existing annuity, regardless of purpose, would be taxable to the extent of gain in the contract. Since they have a gain of more than $18,000, the entire amount withdrawn would be taxable.
2. Annuity Care for short term:
If the expenses are eligible for LTC payment under the Annuity Care contract, it could be withdrawn without having to pay taxes on the $18,000. This, and any future LTC withdrawals, would not be subject to taxation.
1. Withdraw example for a longer LTC claim situation
What if Marjorie (or Ned) had a $3,000 per month LTC expense for three years (36 months)? How would this impact:
1. Their existing annuity for the long term:
Any amount of money that comes out of their existing annuity, regardless of purpose, would be taxable to the extent of gain in the contract. The money withdrawn would be taxable to the extent of gain, up to the cost basis of $65,000. So, at least $43,000 would be taxable to the Jones family ($3,000 x 36 months = $108,000 – $65,000 cost basis = $43,000 taxable).
2. Annuity Care for long term:
If the expenses are eligible for LTC payment under the Annuity Care contract, it could be withdrawn without having to pay taxes on the $108,000. This, and any future, LTC withdrawals would not be subject to taxation. If the optional Annuity Care Plus extension of benefits option/rider was purchased, it will continue to provide LTC benefits after the depletion of Annuity Care’s base coverage due to LTC withdrawals.
It is always important to review your overall financial picture before reallocating existing assets. However, if you have an old annuity that is not accessible for long-term care expenses, or cannot provide you with tax-advantaged access to your money for those expenses, it could be time to ask your insurance representative about Annuity Care from The State Life Insurance Company.
1. Tax-free LTC withdrawals are available effective January 1, 2010, as stated in the Pension Protection Act law of 2006. Marjorie and Ned are fictitious and not the individuals in the picture. The specifics of all cases are hypothetical and were used for illustration purposes only.
Annuity Care is a single premium deferred long term care annuity, medically underwritten and issued by The State Life Insurance Company in most states across the U.S. It is a medically underwritten product. All who apply may not qualify. It may credit additional interest to amounts withdrawn for qualifying long-term care expenses.
There are other comparable policies on the market with companies like Global Atlantic and Guaranty Trust Life. We can help you compare all of your options at our independent insurance agency, Hyers and Associates.
Category: Long Term Care InsuranceLast updated on February 23rd, 2023