LONG-TERM CARE PLANNING
As healthcare costs continue to rise, long-term care planning has become a critical part of estate and retirement planning. Whether you’re considering nursing home care, assisted living, or in-home support, early preparation can protect your savings, reduce stress for loved ones, and preserve your financial independence.
You may be asking:
How can I afford long-term care without depleting my or my parent's assets?
What options exist beyond traditional insurance?
Can I protect my home, savings or inheritance from Medicaid recovery?
Below are some crucial long-term care planning strategies for families worth considering.
Consumer-paid long-term care insurance
Long-term care insurance policies are designed to cover the costs associated with nursing home care, in-home health care and assisted living and protect against Medicaid estate recovery liens placed on the home or other assets. Long-term care insurance policies can be purchased as standalone policies or incorporated as a rider to a life insurance policy. Historically, premiums have been expensive and increase over time, but many options on the market, it is often advisable for individuals explore insurance options with their insurance provider or financial advisor.
Employer-paid long-term care insurance
The IRS Code excludes certain employer-provided health care benefits from an employees’ gross income. At the same time, the IRS Code allows the employer to deduct premiums as a business expense. There are policy limitations, such as maximum daily and lifetime benefits.
Self-insure
Individuals with sufficient assets often choose to pay for long-term care themselvesusing savings or income from savings. This may be a more viable option for those with more substantial assets.
Health Savings Accounts
A Health Savings Account (or HSA) is a tax-efficient way to save for health care, including those associated with long-term care. Contributions to an HSA is made on a pre-tax basis or are tax-deductible. Then, earnings that accumulate from investment accounts grow tax-free. Distributions from HSAs are then made for qualified medical expenses tax-free.
Retirement plan distributions
Beginning in 2026, individuals can withdraw up to $2,500 per year from their qualified retirement accounts to pay for long-term care insurance premiums. Ordinarily, individuals who take distributions from their retirement accounts have to pay a 10% penalty. However, the penalty will not apply for up to $2,500 paid for long-term care insurance premiums. An ordinary income tax would still apply for the amounts withdrawn.
529 Plan to Roth IRA rollover
Thanks to the SECURE Act 2.0, which passed Congress in 2022, beneficiaries of 529 college savings plans are now allowed to roll over up to $35,000 of unused funds to a Roth IRA tax-free and penalty-free.
For individuals with surplus funds in a 529 plan, this could be an attractive way to jump start a long-term care self-insurance plan. Restrictions and rules apply. For example, the 529 plan from which funds are being rolled over must have been in existence for at least 15 years. Also, even though there is a lifetime rollover cap of $35,000, annual Roth IRA contribution limits apply. Therefore, a multi-year strategy must be deployed in order to take full advantage of the 529 plan to Roth IRA rollover strategy.
Medicaid trusts
If there are no other alternatives, some individuals may choose to establish a Medicaid Trust, sometimes referred to as a “Medicaid Asset Protection Trust.” That nomenclature, however, is a misnomer, because this type of trust does not guarantee asset protection. Furthermore, an individual no longer owns the assets transferred to this type of trust.
Conclusion
Planning ahead for long-term care helps secure your comfort, dignity, and financial stability in later years.
Concerned about protecting your home or savings?
Schedule a consultation with Old Colony Law today to discuss personalized long-term care strategies and how strategic estate planning can help safeguard your assets.
