Legislation has been introduced in the House of Representatives to allow tax- and penalty-free withdrawals to pay for long-term care insurance.
Rep. Ann Wagner (R-MO), the Vice Ranking Republican on the House Financial Services Committee, introduced the Long-Term Care Affordability Act (H.R. 7107) on March 16. The bill would allow individuals to withdraw funds from their 401(k), 403(b), 457(b) and IRA accounts to pay for long-term care insurance without being subject to the 10% early withdrawal penalty.
The legislation would also allow up to $2,500 in withdrawals annually per individual to be excluded from income tax, provided the amount is used to pay for qualified LTC insurance for the individual, their spouse or a dependent.
The bill 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.
“Retirement can be expensive enough for seniors, and we should be using every tool we have to make their lives easier and more affordable. This legislation would do just that by providing for favorable treatment of long-term care through retirement accounts, allowing greater access to the necessary care they deserve,” Rep. Wagner said in a statement in introducing the bill.
According to a fact sheet released by her office, by 2030, 50% of individuals living past age 65 will need some long-term care and among households headed by persons aged 65 years or older, nearly 50% have insufficient financial assets to find a home health aide for one year.
According to data from the American Association of Long-Term Care Insurance, a traditional policy valued at $165,000 in benefits can cost $950 annually for a 55-year-old male, while the equivalent coverage for a 55-year-old woman is $1,500. A couple both age 65 could expect to pay $3,750 combined, with the two policies providing each with $165,000 of future benefits. Adding an option that increased future benefits by 3% annually would cost the couple almost twice as much at $7,150 combined.
The bill was referred to the House Ways and Means, and Education and Labor committees. It is the House companion to legislation (S. 2415) introduced in July 2021 by Sen. Pat Toomey (R-PA), who sits on the Senate Finance Committee.