Tax Benefits for Retirement Distributions for LTC Insurance
November 4, 2020 – Senator Patrick Toomey (R-PA), has introduced S. 4820, legislation that would permit tax-free retirement savings distributions of up to $2,500 per year—indexed for inflation—that are used to purchase long-term care insurance. The arrangements to which the legislation applies would include qualified retirement plans, 403(a) and 403(b) plans, governmental 457(b) plans, and IRAs.
These distributions appear to be exempt from the 10 percent early distribution penalty tax by virtue of their being tax-free. The bill would also create new distribution triggers for employee deferral amounts that have been contributed to 401(k), 403(b), and governmental 457(b) plans.