An influential U.S. Senator is preparing legislation that would allow tax- and penalty-free withdrawals to pay for long-term care insurance.
Sen. Pat Toomey (R-PA), who is a member of the Senate Finance Committee, is working on a bill that 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 draft legislation that Toomey plans to introduce in the coming weeks would also allow up to $2,000 in withdrawals annually per individual to be excluded from income tax, provided the amount is used to pay for qualified LTC insurance for the individual, their spouse or a dependent.
Toomey announced that he is working on this legislation at a Nov. 20 hearing on Alzheimer’s awareness held by the Senate Finance Committee’s Subcommittee on Health Care, which he chairs.
Citing data by the Department of Health and Human Service, Toomey notes that 70% of adults over the age of 65 will develop severe long-term and support needs because of a condition like Alzheimer’s.
Toomey further notes that approximately half of senior citizen household have insufficient financial assets to fund a home health aide for a year.
According to the American Association of Long-Term Care Insurance, the average cost of a policy in 2019 is $2,050 for a single male (age 55), $2,700 for a single female of the same age and $3,050 for a couple who are both age 55.
While not addressing the ramifications of retirement plan leakage, Toomey contends that broadening the LTC insurance risk pool and increasing enrollment will help to drive down premiums, making the insurance more appealing.