Millions of American seniors who currently own an annuity are not aware of the IRS-approved planning technique that enables them to also benefit from 100 percent tax-free benefit payments should they need long-term care (LTC).
The planning technique utilizes a special provision of the tax code, a Section 1035 exchange. The law, passed by Congress, was designed to encourage more Americans to plan for the real risk of needing care at some point in their lifetime.
Roughly eight million Americans have any type of long-term care insurance that will pay for LTC costs. However, millions already have an annuity designated as their ‘what if’ funds. The latest data gathered by various industry research groups including LIMRA reveal that some $2.8 trillion is invested in non-qualified annuities.
Simply stated, the law now allows for an annuity owner to re-purpose their current annuity into one that meets IRS criteria. The new annuity continues to grow in value on a tax-deferred basis.
The reasons to consider a change are multiple. For many, there can be significant tax savings should a need for long-term care arise at a future date. Monies can be withdrawn from an annuity to pay for long-term care. However, there may be income tax consequences. That means the risk of facing a tax-bill at a time when funds are critically essential.
An annuity that meets new criteria can continue to grow in value. But, all funds withdrawn to pay for a LTC need are received completely free of income taxes.