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The Problem with IRAs – The Solution

            So, what is the solution to Bill’s IRA problem from last week?  He has $1.2 million in IRA money and doesn’t want to risk losing it all to long term care if he gets sick.  But protecting it by moving it to a trust will cause him to pay a lot in income taxes.  What if it turns out that he never needs long term care?  Is there something that allows him to protect the asset without incurring the tax?

           The answer is a specific type of insurance product, an individual retirement annuity and 20 pay whole life insurance policy with an accelerated death benefit for qualifying long term care expenses.  This means that if Bill needs long term care, he can draw against the benefit on a monthly basis to cover care at home, in an assisted living facility or in a nursing home.

            How exactly will this protect his IRA?  By repositioning a part of his IRA to this product, which he will use to pay long term care, he can protect the rest of it without withdrawing it which would require him to then pay taxes.  He doesn’t pay any tax on the part he repositioned either, because he isn’t “withdrawing” it.  He’s just moving it from one retirement account to another.  Bill only pays tax on the money when he withdraws it and if he does that to pay for long term care then he likely will have a tax deduction which will help offset or could eliminate entirely the tax.

            Plus Bill doesn’t have to worry about guessing whether he’ll need long term care or not.  If he never needs it then the life insurance pays a death benefit to his heirs.  If he changes his mind and wants his money back, there is a full refund of premium.  If we find a better solution for him down the road, he can take his money back and redeploy it.  We have the flexibility we’re always looking for and Bill avoids the “use it or lose it” dilemma of traditional long term care insurance.

            Another consistent problem we avoid is the constant increase of premiums.  If Bill pays the premium for 20 or 30 years, that premium is likely to increase by 2x or more before he ever collects a benefit.  Not so with this new option.  There are no increases.  Bill knows he is locking into an amount that won’t change for the life of that policy.

            One other nice option is available to Bill.  If he is married, he can use his IRA to purchase a joint policy that covers both he and his wife for long term care.  The death benefit pays out after both pass away.

            So what’s the catch?  Well, like any insurance, it’s not your money that qualifies you but your health.  Bill can purchase this product up until he reaches age 81 but he must be healthy enough to get it and the younger (and healthier) he is, the less money he’ll need to commit to the insurance.

            How much exactly?  The answer will depend on his age, health, amount of coverage he wants and whether he is looking to cover just himself or his wife as well.  For more information on this or other creative long term care options email me at and we’ll send you out a copy of my latest book, Don’t Go Broke in a Nursing Home.