The problem with long-term care for many middle-income earners is that they want to buy long-term care insurance to cover potentially huge care costs in the future, but don’t have the cash to pay the premiums.
There may be a solution, SECURE 2.0 Act 2022.
almost 70% of people aged 65 or older According to the U.S. Department of Health and Human Services, older adults will eventually need assistance with activities of daily living, and that assistance can be expensive.
Latest Genworth Cost of Care SurveyThe average cost of a private room in a nursing home is more than $116,000 a year, more than $64,000 for an assisted living facility and nearly $76,000 for in-home care.
Medicare, Medicaid, and Long-Term Care
However, long-term care costs are generally not covered by Medicare. Medicaid will pay for long-term care costs, but you usually have to be close to the poverty level to qualify. So older Americans who don’t qualify for Medicaid and want to prepare for potential long-term care costs must either pay for care from their savings or buy long-term care insurance.
Approximately 70% of people over age 65 will eventually need assistance with activities of daily living.
American Association for Long-Term Care Insurance estimates A 55-year-old couple buying a total of $800,000 in coverage they will need until age 85 would pay about $5,000 per year. (Premiums will be higher if they wait until they are in their 60s to buy insurance.)
If you can’t come up with that amount, you can also pay the premiums through a tax-free rollover from an IRA, says Brian Gordon, president of Gordon Associates, a long-term-care insurance brokerage in Bannockburn, Illinois.
This is where the SECURE 2.0 Act comes into play.
Before the law, if you died and your child inherited a 401(k) to IRA rollover, you could close the account during your lifetime, but “under SECURE Act 2.0, you have to close that account within 10 years,” Gordon said. Latest episode of the Friends Talk Money podcast (Full disclosure: I am a co-host of that podcast with Teri Savage and Pam Krueger).
An age-old question
New Strategy for Nursing Care Insurance Premiums
To avoid your heirs having to withdraw your entire IRA within 10 years of your death, Gordon said you could withdraw some of that money while you’re still alive and buy a 10-year premium annuity with a small permanent life insurance and long-term care insurance rider.
This is known as a hybrid policy. With this strategy, long-term care benefits grow tax-free and your heirs receive the death benefit.
“A couple wanting long-term care insurance with a monthly benefit of $6,000 could move about $164,000 from their IRA into an annuity to fund the whole life insurance policy,” Gordon said.
Savage, the personal finance columnist and author, noted that the purchase guarantees long-term care insurance premium payments for 10 years, after which the hybrid long-term care/life insurance premiums will be paid in full.
Hybrid Long-Term Care Insurance
If you don’t want to take a large amount out of your IRA rollover to purchase a hybrid policy, you can simply take out enough money each year for 10 years to purchase a hybrid policy.
“Today, more and more people are finding a combination of long-term care insurance and life insurance more acceptable than long-term care insurance alone because they think, ‘If I don’t use it, at least I’ll get some money back to my family when I die,'” Savage said.
“Today, more people are finding a combination of long-term care and life insurance more acceptable than simply long-term care insurance.”
There’s one caveat, though: If you do this before age 59 1/2, you’ll be taxed 10% on your IRA withdrawals, but waiting until your 60s could mean higher long-term care insurance premiums.
Delaying the purchase of long-term care insurance also increases the chances of being denied coverage due to a health condition.
“If you’re between 60 and 64, you have about a 30 percent chance of not being issued coverage,” Gordon said. If you’re over 65, you have about a 50 percent chance of being rejected, he noted.
Keep in mind that if you use an IRA rollover to pay for long-term care insurance premiums, you probably won’t be covered. all Potential long-term care costs.
“Most people need to come up with the remaining $6,000 a month that they need to live in a really good long-term care facility.” Wealth LampA service that rates financial advisors.
Richard Eisenberg is the former senior web editor for Next Avenue’s Money & Security and Work & Purpose channels and the site’s former editor in chief. He’s the author of How to Avoid a Midlife Financial Crisis and has served as personal finance editor for Money, Yahoo, Good Housekeeping, and CBS MoneyWatch.
