# Long-Term Care Affordability Act: What It Means for You

This bill makes it easier for people to use money from their retirement accounts to pay for long-term care insurance without facing tax penalties. Right now, if you withdraw money from a 401(k), IRA, or similar retirement plan before retirement age, you typically have to pay income taxes on that money and sometimes face additional penalties. This bill creates an exception specifically for buying long-term care insurance.

Here's what changes: You can now take up to $2,500 per year from your retirement account to pay for long-term care insurance premiums without reporting it as taxable income. This limit adjusts upward each year for inflation. The insurance can cover either a standalone long-term care policy or a rider attached to a life insurance policy that covers the cost of extended care services like nursing homes or in-home care. You can use this for yourself, your spouse, or your dependents. The key benefit is that this money comes out of your retirement savings tax-free, which makes long-term care insurance more affordable for people who have been saving for retirement.

The bill applies to most types of retirement plans, including traditional IRAs, 401(k)s, 403(b) plans, and government employee plans. There's an important limitation: only one person per household can claim this tax break for any given person being insured. So if you and your spouse both have retirement accounts, only one of you can use this exclusion to pay for your mother's long-term care insurance in a given year. Insurance companies will also need to report these transactions to the IRS and provide statements to customers showing how much was paid for coverage each year.

Long-Term Care Affordability Act

Wagner, Ann

Long-Term Care Affordability Act This bill allows the use of tax-exempt retirement plan distributions to pay for long-term health care insurance. Specifically, it excludes such distributions from the gross income of an insured individual up to $2,500 for per individual in a taxable year. It also imposes reporting requirements on plans and insured individuals and requires a description of long-term care insurance arrangements and facts sheets for employers and workers.