Can this bill get 401(k) withdrawals without penalty for common retirement expenses?

Can this bill get 401(k) withdrawals without penalty for common retirement expenses?

401k withdrawals for ltc

401k withdrawals for ltc

When planning for the future, healthcare is one of the biggest concerns for both savers and retirees. Not only are healthcare costs rising by more than 5% each year, but rampant inflation and volatile market performances have also added extra pressure to retirement savings, making many older Americans wonder if they can retire after all.

The new legislation aims to alleviate some of the concerns: Ann Wagner (R-MO), a member of the House Financial Services Committee, introduced a bill to help reduce the cost burden of long-term care. More than half of all individuals over age 65 are expected to need some form of long-term care by 2030, and this new account could help you pay for it.

A financial advisor can help you plan for retirement and determine whether early withdrawal from your retirement accounts is appropriate for you. Find a qualified consultant today.

Representative introduces new bill to help with long-term care

On March 16, Congressman Wagner introduced the Long-Term Care Affordability Act. Long-term care is the second biggest financial concern for Americans, right behind retirement savings, and this bill aims to provide favorable tax treatment to help.

Long-term care encompasses services designed to help people live as independently as possible when they have a serious illness or disability that prevents them from performing daily activities on their own, such as bathing, eating and dressing. Individuals may need long-term care after attacks of sudden illness, such as after a heart attack or stroke, but other times the need for care comes gradually as an underlying problem becomes apparent.

Half of older Americans don’t have enough funds to hire a home health assistant for a year, and many resort to purchasing long-term care insurance to cover unexpected expenses. The Long-Term Care Affordability Act would allow individuals to withdraw funds from their retirement accounts, including 401(k), 403(b), 457(b) and IRAs, to pay for long-term care insurance without paying the 10% advance – penalty of withdrawal. It would also exclude up to $2,500 in verified income tax withdrawals. Given that most Americans who buy long-term care insurance do so before retirement, this would help encourage individuals of all ages to plan ahead.

Why is long term care insurance important?

401k withdrawals for ltc

401k withdrawals for ltc

Long-term care insurance should be strongly considered as part of your long-term financial planning, as it covers the cost of helping with daily living when you can no longer do it yourself. You won’t qualify for long-term care insurance if you already have a debilitating condition, so you should buy it before you need it. Medicare only covers short stays in nursing homes or limited home health care when you need specialist help after an operation or injury, and Medicaid will only cover you when your income falls below the applicable low-income threshold.

How retirement savers can benefit

Long-term care can quickly deplete your retirement savings, so purchasing long-term care insurance can help protect your future. For example, insurer Genworth estimates that the 2021 national average cost for a home health aide is $5,148 a month, while getting a private room in a nursing home could cost $9,403 a month. On the other hand, long-term care insurance premiums for a 55-year-old man average $1,700 a year and can cover up to $386,500 if you need it when you’re 85.

It may be helpful to speak with a consultant to see if long-term care insurance is a good fit for you, as there are several long-term care options that may cover your needs. If the Long-Term Care Affordability Act is passed and signed into law, you will be able to pay your insurance premiums with tax-free dollars, but you should strongly consider whether early withdrawal of your retirement accounts is a wise choice for your situation. In some cases it may be the most financially smart decision, but in others it may be better to look at other options.

Final result

401k withdrawals for ltc

401k withdrawals for ltc

Long-term care is a pressing concern for many Americans, and a new bill has been introduced to address its cost. The Long-Term Care Affordability Act aims to make it possible for you to withdraw your long-term care insurance premium costs from your tax-advantaged retirement accounts without paying any taxes or fees. It may be beneficial for you to consider purchasing long-term care insurance, as long-term care is very expensive and is often not covered by your regular health insurance.

retirement planning tips

  • Not sure if withdrawing your 401(k) to pay for health care expenses will negatively affect your retirement plans? For solid, long-term financial help, consider speaking to a qualified financial advisor. SmartAsset’s free tool matches you with up to three financial advisors who serve your field, and you can interview your advisor peers at no cost to decide which one is right for you. If you’re ready to find a consultant who can help you achieve your financial goals, start now.

  • Use SmartAsset’s free retirement calculator to get a good estimate of how much money you’ll need to retire.

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The post New Bill May Allow Penalty-Free 401(k) Withdrawals for This Retirement Expense appeared first on SmartAsset Blog.

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