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Benefits of Using an IRA to Fund LTC Insurance

It has long been true that utilizing IRA’s to fund specific financial planning objectives is a popular strategy. However, you may not be aware that you can do a lump sum transfer from an IRA to fund an LTC contract, receive a 25% bonus on the money transferred, and stretch the tax payments over 10 years. This can be done in one seamless transaction.

Compare: Husband and Wife, age 60, filing jointly, with taxable Income of $325,000. They transfer $200,000 to purchase a Hybrid LTC policy covering both husband and wife.

Had they used a different company, the $200,000 would have increased their marginal tax for that year from 24% on the first $39,200 of the rollover amount to 32% on the next $98,300 and 35% on the next $62,500, resulting in an additional tax liability of $62,739. Additionally, there would not have been a 25% bonus.

Using our company the same $200,000 transfer would only trigger an additional income tax liability of $6,000 per year for the next 10 years. This assumes no changes in the joint taxable income or the U.S. Federal Income Tax tables.

Assuming equal or better benefits, which do you think your clients would prefer?

Note: The tax calculations are estimates. To verify any tax calculations, you should always consult a tax professional.

Best regards, John

Emphasize the Tax Implications of Self Funding LTC

Undoubtedly, there are clients with enough assets to pay for care should they need it later in life. That said, this may be one of those instances where just because you can, doesn’t mean you should.

Simply transferring this risk to an insurance company is already going to provide a significant discount. What is often not factored into the decision to self-fund, however, is the impact of taxes.

Unless paying with cash from a checking account that doesn’t accumulate interest, every time the client liquidates an asset to pay for their care, they are creating a taxable event. At either capital gains or ordinary income rates, the tax burden this creates can grow quickly. This tax burden can absolutely change the perspective of a client thinking of self-funding.

Drop us a note or give us a call if you want to take a closer look at how we’re helping other advisors talk their clients through this decision.

Best regards, John

Try SPWL for Inheritable Assets

Many seniors have set aside a portion of their assets for safe keeping with the sole intention of leaving it to their loved ones ( children, grandchildren, etc.). We are suggesting that you consider SPWL. It is underwritten by a very well funded company, boasting a 96 Comdex Rating. Contact us for a comparison of the SPWL with an annuity and a CD, which are 2 very common alternatives for this strategy.

If you consider every aspect of the illustration, it would be hard not to conclude that it compares most favorably in the critical areas of performance, liquidity, and passing on a legacy to loved ones. Insurability, of course, is a consideration, but it is at least worth a look when dealing with seniors. The older they are, the better the strategy.

If you have a case you might be working on right now, or if you just want to know more about it, give us a call.

Best regards, John