Proposed legislation supported by some senior living associations would allow individuals to pay for long-term care insurance from existing retirement accounts without a tax penalty.
U.S. Sen. Pat Toomey (R-PA) said Thursday that he is reintroducing the Long-Term Care Affordability Act to allow individuals to pay up to $2,500 each year for long-term care insurance from existing 401(k), 403(b) and IRA accounts without fear of tax penalties, including the current 10% tax penalty for early withdrawals, generally defined as occurring before age 59.5.
Toomey called the legislation a “commonsense change” to make long-term care insurance more affordable, treating withdrawals similar to those made to pay for life insurance.
One in three Americans have less than $5,000 saved for retirement, and less than 8% have long-term care insurance, according to James Balda, president and CEO of Argentum, which supports the bill.
“By the end of this decade, each of the 74 million baby boomers will have reached 65, and they will have a roughly 50% chance of needing long-term care at some point in life,” Balda said. “As the need for long-term care increases, this legislation provides a critically important means to help ensure more Americans have the financial ability to meet their care needs.
The American Seniors Housing Association also supports the legislation. ASHA President David Schless told McKnight’s Senior Living that serious consideration must be given to increasing awareness about future long-term care needs and costs for the nation’s aging population, as well as how to increase savings to pay for it.
According to the 2019 Insurance Barometer Report from research and consulting firm LIMRA, how to pay for long-term care is the second greatest financial concern for Americans, only behind having sufficient retirement savings.
“The challenges of paying for long-term care, including senior living, [are] expected to increase as savings rates decline,” Schless said. “Sen. Toomey’s bill provides an incentive to purchase long-term care insurance, which will get more people on the track to ensuring they are planning for these services should they need them.”
This approach, Schless added, isn’t the only solution to the long-term care financing challenge and may not help individuals who do not have retirement accounts, “but it’s a solid start.”
Robert Egge, Alzheimer’s Association chief public policy officer and Alzheimer’s Impact Movement executive director, said that Alzheimer’s is one of the most devastating and fatal diseases — and among the most expensive.
“This bill could make a meaningful impact for families struggling to pay for care, by making long-term care insurance more accessible by creating the ability to use retirement plan funds to obtain insurance,” he said.