As we age, planning for long-term care becomes an essential part of securing our financial future. Many individuals in their 60s are beginning to focus on Medicare and financial planning, making it the perfect time to consider long-term care insurance. Today, we’ll explore a unique strategy for purchasing long-term care insurance using IRA funds—a solution that provides lifetime benefits while minimizing upfront financial strain.
Why Use IRA Funds for Long-Term Care Insurance?
For many individuals approaching retirement, a significant portion of their savings resides in their IRA accounts. Rather than tapping into liquid savings or other assets, IRA funds can be strategically used to purchase long-term care insurance. This approach leverages a lump-sum premium payment, smoothing out taxes over several years instead of incurring them all at once.
A Popular Approach: Single-Premium Long-Term Care Policies
One increasingly popular option is to purchase long-term care insurance with a one-time, lump-sum premium. A hybrid policy, such as the one offered by OneAmerica, allows you to:
- Use IRA funds for a single premium.
- Spread out tax obligations over 10 years.
- Secure lifetime coverage for yourself and your spouse.
For example, a $200,000 IRA contribution can provide a monthly long-term care benefit of $7,335 per person, starting immediately upon policy activation.
Key Features of Hybrid Long-Term Care Policies
- Lifetime Benefits: Unlike traditional policies that limit coverage to a few years, this policy offers unlimited benefits for as long as you or your spouse require care.
- Flexible Care Options: Choose between formal care (licensed providers or facilities) or informal care (family or friends) with partial cash benefits for the latter.
- Estate Planning Benefits: If you don’t use the full benefit, a tax-free death benefit (e.g., $176,000 for a couple) is paid to your beneficiaries.
- Tax Efficiency: The IRA withdrawal is structured to meet Required Minimum Distribution (RMD) requirements while spreading taxes over time.
Protecting Your Family
The reality of long-term care is that it often places a financial and emotional burden on families. Without a plan, loved ones may struggle to balance caregiving responsibilities with the costs of care. A well-structured policy ensures that your family can focus on your well-being rather than worrying about finances.
Example Scenario
Let’s consider a couple, both aged 65, who decide to invest $200,000 from their IRA into a hybrid policy:
- Initial Bonus: A 25% bonus increases their contribution to $250,000.
- 10-Year Payout: Over 10 years, $25,000 annually funds the policy, spreading the tax burden.
- Lifetime Benefits: Provides $7,335 per month per person, with no limit on benefit duration.
- Death Benefit: If no care is needed, their heirs receive $176,000 tax-free.
Planning for the Unexpected
Beyond financial coverage, hybrid policies offer practical support:
- Immediate benefits for home-based care with zero waiting periods.
- Assistance from caregiver consultants and care benefit concierges.
- Coverage for adult daycare, home modifications, and supportive equipment.
Take the Next Step
Long-term care planning is a critical component of a comprehensive financial strategy. By utilizing IRA funds to secure lifetime benefits, you can achieve financial security while protecting your loved ones from unexpected costs.
If you’re ready to explore how this strategy could work for you, reach out for a personalized illustration tailored to your situation.
