Tax Law Encourages Long-Term Care Planning

American families are being impacted by the financial costs and burdens of aging. Long-Term Care costs are expensive. Tax benefits make LTC insurance even more affordable. Plan before retirement.

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Tax Law Encourages Long-Term Care Planning
6 Min Read September 14th, 2018 Updated:February 1st, 2020

You are hearing a lot about long-term care these days. Those in Washington, and on the campaign trail, are discussing this issue since it impacts so many American families. 

As America ages, more of us will need help with our everyday activities or skilled health services. We are not talking about short hospital stays, but rather ongoing skilled and custodial services due to an illness, accident, or the impact of getting older. 

Long-Term Care is Expensive - Options Help with Affordability and Asset Protection

The cost of long-term care services and supports are very expensive and not generally paid for by health insurance plans or even by Medicare and supplements you will get once you are age 65. This places the burden of long-term care on you and your family. You will pay for care yourself, or the responsibility of caregiving will be placed on your family. 

Americans have a solution to provide you, or a loved one, with your choice of quality care either in your own home or in a facility like assisted living, memory care, or even a nursing home.  The solution is not usually Uncle Sam.

Tax Benefits & Special Policies Makes Planning Easier

While some people may be waiting for a federal government solution to long-term care planning, they should be aware of a plan already exists. Federal tax laws provide encouragement and benefits for those who purchase qualified Long-Term Care Insurance. Plus, many states participate in the Long-Term Care Partnership Program, which provides a consumer additional asset protection if they purchase a qualified policy.

"Tax breaks are the most significant indication that the federal government is trying to motivate individuals to do something about planning for the costs of long-term care."

"There are already a number of Internal Revenue Service or IRS-approved tax deductions and tax incentive programs available for consumers." 

"A significant one is more attractive this tax-year and should not be overlooked as a tax-smart way to plan the real risk of one-day needing long-term care."

Jesse Slome, director of the American Association for Long-Term Care Insurance, a national consumer education and advocacy group

One of the most significant IRS-approved tax advantages is the tax deductibility of tax-qualified long-term care insurance premiums.  

"Not all plans marketed today as providing potential long-term care benefits are deductible, but those that provide some enormous incentives for consumers."

Jesse Slome

Not all Long-Term Care Insurance products are tax-deductible. Generally, you must have a traditional tax-qualified plan to be eligible. Many “hybrid” or asset-based plans have limited or no tax benefits. A Long-Term Care specialist can explain the differences.

This LTC News article reviews the 2020 tax benefits of Long-Term Care Insurance: 

"According to the latest IRS data, some 8.8 million taxpayers took advantage of deductions for medical and dental expenses saving themselves an aggregate of $87 billion.  A temporary expansion of the medical expense deduction could benefit many more this year,"

Jesse Slome

The IRS allows you to deduct qualified medical expenses that exceed 7.5% of your adjusted gross income. There has been debate about increasing the 7.5% to 10%, which would make it more challenging to itemize this as a deduction on your personal income tax forms. But if you own a business, or you are self-employed, a Long-Term Care Insurance deduction is very easy. 

Business Owners - Including Self-Employed - Have Huge Tax Benefits

If you are self-employed or own an S-Corp, LLC, C-Corp, or other forms of business organizations, you may deduct the premium as a business expense. Plus, you do not have to offer the benefit to other employees. 

This is a key consideration. You are allowed to purchase a policy for yourself and your spouse without having to provide this benefit to anyone else. You can also, if you wish, provide Long-Term Care Insurance as an exclusive benefit for key employees or managers. The cost of Long-Term Care Insurance premiums is tax-deductible for the company and tax-free to the employee. 

Plan Younger When You Qualify for Low Premiums

For individuals, most people purchase in their 40s and 50s before retirement. While they may not qualify for the medical expense deduction today, as they get older, they may become eligible.

Experts suggest planning before you retire as you can take advantage of much lower premiums and perhaps qualify for preferred health discounts.

If you own a Health Savings Account (HSA), you can use the pre-tax money in that account to pay for Long-Term Care Insurance premiums. You can read about Health Savings Accounts in this LTC News article: Using a Health Saving Account to Pay Long-Term Care Premiums 

Many American families are experiencing long-term care events in their families. Today's Generation X and Late-Boomers see parents, aunts, and uncles require long-term care services and supports. They see the repercussions of long-term care and its impact on the family and finances.  

Protect Retirement Savings and Prepare Your Family

Affordable Long-Term Care Insurance has become a big part of retirement planning for American families so they can safeguard their future retirement savings from the financial costs and burdens that come with longevity. 

Addressing long-term care in advance will protect your 401(k), IRA, SEP, 403(b), and other assets from the high expenses of extended care.

Health Insurance - Including Medicare - Won't Pay for Most Long-Term Care

People require long-term care services and support due to illnesses, accidents, or the impact of just getting older. Health insurance, Medicare, and supplements, including Medicare Advantage, will not pay for most long-term care services outside of a limited amount of skilled services for up to 100 days.

The consequences of ignoring this risk will place tremendous pressure on your family as they either will serve as caregivers or must manage your future care selling off your assets to pay for the costs of paid care services. 

Start your research by finding the current and future cost of long-term care services where you live. Just click here to see the costs. 

Partnership Long-Term Care Insurance - America's Great Retirement Secret

One of the biggest secrets in retirement planning is a product that will shelter your estate from the consequences of aging. Most states participate in the Long-Term Care Partnership Program. These states offer these special policies called "Partnership" certified Long-Term Care Insurance plans. This government, insurance company, and consumer partnership gives you "dollar-for-dollar" asset protection if you own one of these qualified plans. These policies include inflation benefits and other features and are very affordable. 

See if your state is one of the 45 states that offer these outstanding asset-protection products - click here


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About the Author

An LTC News author focusing on long-term care and aging.

LTC News Contributor James Kelly

James Kelly

Contributor since August 21st, 2017

Editor's Note

Remember, you must health-qualify to obtain coverage so you can't wait until you get old and need care. Act before you retire and enjoy low premiums and even good health discounts. 

Seek the help of an experienced Long-Term Care Insurance specialist to help you shop and find the best coverage at the best value. Premiums can vary over 100% for the exact same coverage, so using a specialist who represents the major insurance companies can save you a lot of money. 

Find a trusted Long-Term Care Insurance specialist by clicking here.  Get free quotes from all the major insurance companies by clicking here.

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