Tax-Free Distributions With An LTC Annuity

Long term care will be one of the most expensive things that most people pay for in their lifetime. Many people ignore the fact that they may need long term care at some point in their life because it’s just not something they want to think about. With the sky high cost of this type of care, long term care insurance can save your future finances from being depleted by paying for this type of care in your old age. If you have ever had a family member or friend who had to pay for long term care, chances are that you’re more open to looking for some type of long term care insurance. You now have another option in addition to traditional long term care insurance, which often requires a physical to purchase. An LTC annuity is a traditional fixed annuity product that offers an option to pay for long term care should you need it someday.

In an article for the Montgomery Advertiser, Van Sievers wrote about how “Long-term care annuities offer new options.” Many people don’t realize that the majority of those who need long term care are able to stay in their home and receive care there. The more money or insurance you have to pay for your long term care, the more options you have to choose from in what type of care you will receive. You can buy long term care insurance or self insure against these future costs or you can look into buying a long term care annuity product. This fixed annuity works just like any annuity product that you buy from an insurance company, except you have the option to use your money to pay for long term care costs directly rather than receiving income payments and using that money to pay long term care bills. There is a big advantage to doing this: your distributions are tax-free if the money goes directly to pay for long term care. If you don’t need the funds for long term care, you can take annuity distributions as you would with any fixed annuity and even leave the money to your beneficiaries if you have death benefits.

There are significant benefits to purchasing an LTC annuity. Your money is guaranteed by an insurance company, grows tax deferred and you will receive a competitive interest rate on your fixed annuity product. You can purchase an LTC annuity all the way until you are age 85 and with only simple medical underwriting rather than a full physical. Your earnings accumulate tax deferred and you don’t have pay taxes on your distributions if they are used to pay for long term care. If you don’t need the money to pay for long term care, you or your heirs will still receive the annuity payments as you would with a non-LTC annuity. There are a couple things to watch out for when considering an LTC annuity product. You have to buy it with a lump sum of money, so you should have a minimum of $40,000 saved to purchase your annuity. LTC annuity products are not liquid, so you should be prepared to keep your money in the annuity during the surrender period so that you don’t have to pay surrender charges. An LTC annuity offers a unique way to prepare for either a future annuity income stream or cover the cost of long term care in the future.

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