Pay for Your Premiums with Tax-Free Withdrawals from Your Health Savings Account (HSA)
If you have a Health Savings Account (HSA), did you know you can pay a portion of eligible LTCI premiums with tax-free money in your account? The amount you can withdraw is based on your age up to annual IRS limits. You can also withdraw up to the following limits for your spouse’s coverage.
|Attained Age During Taxable Year||2017 LTCI Premium Maximum with HSAs||2018 LTCI Premium Maximum with HSAs|
|40 and under||$410||$420|
If your employer offers a high deductible health plan with HSA, consider your options. HSAs can be a great way to save for current and future eligible health care expenses, including a portion of LTCI premiums now and into retirement. For more information about Health Savings Accounts and limitations, review IRS Publication 969.
Deduct Your LTCI Premiums as a Medical Expense
You may qualify to deduct a portion of your LTCI premiums as a tax-deductible medical expense. The same age-based limits apply to these deductions as they do for Health Savings Account withdraws. Keep in mind, if you already took a tax-free withdrawal from your HSA to pay LTCI premiums, you cannot deduct the same expense as medical expenses.
Medical expenses may be deducted if they exceed 10% of your adjusted gross income (AGI) or over 7.5% of your AGI if you are age 65 or over. For more information, review IRS Publication 502.
Annuity Tax-Free Transfer
If you have an annuity, you can transfer money tax-free to pay for LTCI premiums or transfer funds to another annuity with an LTC rider. This transfer is referred to as a 1035 exchange. Funds must be directly transferred from an annuity to pay for premiums to enjoy the benefits of the tax-free transfer. If you withdraw money from the account to pay premiums, you will be required to pay income taxes on gains. Your LTCI carrier can help with 1035 exchange for tax-free transfers.
“Your LTCI carrier can help with 1035 exchange for tax-free transfers.”
Permanent Life Insurance Tax-Free Transfer
Another tax-free exchange option is by using a cash-value Life insurance policy to pay for LTCI premiums or transferring to a hybrid Life insurance policy with LTC rider. The tax-free funds come from the policy’s cash value or policy dividends. This can be a great option as you get older and don’t need as much Life insurance coverage.