Many people are unaware of the significant tax-treatment available with Long-Term Care Insurance. As more people purchase these plans prior to retirement, these tax benefits can make what is an affordable product even more valuable.

Tax deductible limits for traditional Long-Term Care Insurance premiums that are paid in 2018 have been increased according to the American Association for Long-Term Care Insurance.

“The tax deductibility of some tax-qualified Long-Term Care insurance provides significant value to consumers especially after they retire” explains Jesse Slome, director of the American Association for Long-Term Care Insurance (AALTCI).  The AALTCI is a national organization who educates consumers and advocates for the importance of planning while supporting insurance and financial professionals who provide LTC financing solutions.

“The special tax advantages are only available with tax-qualified health-based Long-Term Care insurance though it would be valuable one day to see them added to linked-benefit products such as life insurance or annuity policies that can provide a future long-term care benefit,” Slome said.

Long-Term Care Insurance has attractive tax treatment under IRC 7702(b). Premiums can be tax deductible if you have enough medical related deductions, you are self-employed or own a LLC, S-Corporation or C-Corporation. C-Corporations can deduct 100% of the premium. Otherwise the IRS publishes a chart each year which indicates the amount deductible based on age.

The IRS has increased these amounts for 2018.   

Attained Age Before Close of Taxable Year         2018 Limit 2017 Limit
40 or less                                                                   $420 $410
More than 40 but not more than 50 $780 $770
More than 50 but not more than $1,560 $1,530
More than 60 but not more than 70 $4,160 $4,090
More than 70 $5,200< $5,110

People who have Health Savings Accounts (HSA) can also use pre-tax money to pay for premiums. Plus, some states offer tax deductions or credits as well. In addition, most states of Partnership plans which provide additional dollar-for-dollar asset protection if you have a partnership policy in place.

Free Long Term Care Quote
Free Long Term Care Quote

Proceeds from Long-Term Care are generally tax-free in most situations even if you deduct the premium from your taxes.

You can find the tax incentives available, including cost of care and other information on Long-Term Care in your state by clicking here: https://www.ltcnews.com/resources/state-information

Many experts suggest having an advance plan for the financial costs and burdens of aging since the impact of long-term care can dramatically impact your retirement plan and family. The best time to plan is before you retire as premiums are based on your age and health at the time of application. Premiums are intended to remain level although could increase if an approved increase on an entire class of policy holders is authorized by your state’s insurance department. Policies today are priced under new rules which make it harder for increases. In addition, policies are priced considering the extreme low interest rate environment we have experience over the years.

If you have a Long-Term Care policy already be sure to tell your tax advisor. Otherwise seek the help of a long-term care specialist to help design an appropriate plan based on your age, health, financial plan and concerns.

“Our nation needs to have more Americans saving for retirement and also having a plan to pay for the very real risk of needing long-term care,” Slome said.