House bill

House bill would allow 401(k) withdrawals to pay LTC premiums

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), a vice-Republican on the House Financial Services Committee, introduced the Long Term Care Affordability Act (HR 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 exempt from income tax up to $2,500 of annual withdrawals per person, provided the amount is used to pay for qualified LTC insurance for the person, their spouse or a dependent. .

The bill also imposes reporting requirements on plans and insureds, and requires a description of long-term care insurance arrangements and information sheets for employers and workers.

“Retirement can be quite expensive for older people, and we should use all the tools at our disposal to make life easier and more affordable for them. This legislation would do just that by providing favorable treatment for long-term care through retirement accounts, allowing greater access to the necessary care they deserve,” Rep. Wagner said in a statement during the presentation of the project. of law.

According to a fact sheet released by his office, by 2030, 50% of people living past 65 will need long-term care and among households headed by people aged 65 or over, nearly 50% have insufficient financial assets to find a home helper for a year.

According to data from the American Association of Long-Term Care Insurance, a traditional policy worth $165,000 in benefits can cost $950 a year for a 55-year-old man, while the equivalent coverage for a woman of 55 is $1,500. A 65-year-old couple can expect to pay $3,750 combined, with the two policies each offering $165,000 in future benefits. Adding an option that would increase future benefits by 3% per year would cost the couple almost double that, or $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 serves on the Senate Finance Committee.