What You Need to Know
- The new draft could get through Congress as part of the Secure 2.0 package.
- One section would let a retirement plan participant spend up to $2,500 of the assets per year on LTCI premiums without paying early withdrawal penalties.
- The LTCI premium payment amounts would be included in taxable income.
Senate Finance Committee leaders want to give some of your clients a little help with using retirement savings to pay long-term care insurance premiums.
Sen. Ron Wyden, D-Ore., the committee chairman, and Sen. Mike Crapo, R-Idaho, the highest-ranking Republican, released the formal text of the committee’s Enhancing American Retirement Now Act, or EARN Act, bill Thursday.
The new EARN Act formal text includes a provision, starting on page 127 of the PDF version, that would let clients spend up to $2,500 per year in retirement plan or IRA assets on premiums for high-quality LTCI coverage.
Clients who used the provision could avoid paying the 10% penalty tax on early retirement savings withdrawals. But clients who took the distributions would have to pay federal income taxes on the distributions.
What It Means
If the provision is enacted and implemented as written and works as expected, it might help some clients who already want LTCI protection and have large amounts of retirement savings to pay for the coverage.
The provision might have only a modest effect on other consumers’ interest in LTCI coverage.
The Outline and the Text
Members of the Senate Finance Committee approved a plain-language outline of the EARN Act bill in June, by a voice vote.
The EARN Act bill has support from both Republican and Democratic lawmakers, and it appears to have a good chance of moving through Congress as part of the Securing a Strong Retirement Act bill — the big “Secure 2.0″ consumer finance package.
What the Senate Finance Committee is now working on is a version of the plain-language outline that has been translated into formal legislative language.
The June outline is available here.