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September 16, 2022 at 03:43 PM
The Senate has released its version of the second round of retirement-related reform provisions that are expected to be considered before year-end. In its current form, the Enhancing American Retirement Now (EARN) Act would allow retirement savers to withdraw up to $2,500 in retirement plan assets each year to cover the cost of long-term care insurance premiums without paying the otherwise applicable early withdrawal penalties. These withdrawals would continue to be subject to federal income tax.
We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the narrow provision allowing penalty-free withdrawals to cover long-term care insurance.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Byrnes
Bloink
Their Reasons:
Byrnes: Long-term care is probably the most costly expense that retirees will face — and there’s no way to know when the need for care will arise. Allowing taxpayers to access their hard-earned retirement funds to cover those costs via the insurance route without penalty makes absolute sense. We shouldn’t be penalizing Americans for covering the cost of care that Medicaid would otherwise be forced to cover.
Bloink: Frankly, this provision doesn’t go nearly far enough. Americans are spending hundreds of thousands of dollars on long-term care and insurance. They should be able to access their retirement savings penalty-free without limit to cover these costs. This narrow provision doesn’t make a dent in the needs of the ordinary American struggling under the weight of LTC costs.
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