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How to pay LTC?
Old 10-17-2019, 03:03 PM   #1
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How to pay LTC?

We self-fund LTC. My question, however, is A. Take the funds from Taxable accounts, or B. Take the funds from IRAs.

I figure that money spent on LTC would be tax deductible. So while we do not have to make this decision yet, it would appear better to take the money out of IRAs and reduce the tax on this withdrawal to zero or close to it. On the other hand, taking it out of taxable accounts lowers current tax. As we are both over 70, RMD's are mandatory either way.
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Old 10-17-2019, 03:36 PM   #2
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I'm a little confused....are you trying to create a fund using annual distributions to cover LTC, or are you trying to create a plan for when you need to pay for LTC? Not all LTC expenses are tax-deductible.

Whether it's best to take money out of IRAs or taxable accounts would depend on your income, your taxes, your tax bracket, whether you'll be paying LTCG taxes, etc. There is no one-size-fits all answer here. You'd need to provide a lot of detailed information to get an appropriate answer.

"Medical expenses, including some long-term care expenses, are deductible if the expenses are more than 7.5 percent of your adjusted gross income. ... In order for assisted living expenses to be tax deductible, the resident must be considered "chronically ill."
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Old 10-17-2019, 05:29 PM   #3
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Originally Posted by HNL Bill View Post
I'm a little confused....are you trying to create a fund using annual distributions to cover LTC, or are you trying to create a plan for when you need to pay for LTC? Not all LTC expenses are tax-deductible.

Whether it's best to take money out of IRAs or taxable accounts would depend on your income, your taxes, your tax bracket, whether you'll be paying LTCG taxes, etc. There is no one-size-fits all answer here. You'd need to provide a lot of detailed information to get an appropriate answer.

"Medical expenses, including some long-term care expenses, are deductible if the expenses are more than 7.5 percent of your adjusted gross income. ... In order for assisted living expenses to be tax deductible, the resident must be considered "chronically ill."
And after reaching 7.5% then you need to exceed the standard deduction before you really see any benefit assuming you don't have other deductions.
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Old 10-17-2019, 05:31 PM   #4
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My LTC will be self-funded. In home care until the money runs out. Parties every night as long as I know there is a party.

Then I am going to pass myself off to the taxpayer, if I am still alive.
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Old 10-17-2019, 05:57 PM   #5
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My LTC will be self-funded. In home care until the money runs out. Parties every night as long as I know there is a party.

Then I am going to pass myself off to the taxpayer, if I am still alive.
Way to go!
Why aspire to 'LTC nursing'.
The data shows an extra 3 yrs avg., ....in a nursing home.
I'd rather be dead, ...see you at the party Senator!
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Old 10-17-2019, 06:19 PM   #6
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Originally Posted by HNL Bill View Post
I'm a little confused....are you trying to create a fund using annual distributions to cover LTC, or are you trying to create a plan for when you need to pay for LTC? Not all LTC expenses are tax-deductible."
I have adequate funds to provide the approximate $75 to $85 thousand a year for LTC. I am assuming care in a Alzheimer ward or similar living facility.
I have no idea what is deductible in that case. As I said, this is more of a what if post, as DW and I are both healthy, and a answer is more research than need based.

I would think with LTC expenses being what they are, that it would easily go over the required 7.5% limit, and standard deduction limit.

As to tax bracket, my RMD is now taxed at 25%, and I would assume any large deduction would be at a higher rate. However, if it was deductible, I should not matter.
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Old 10-17-2019, 06:24 PM   #7
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This may be an estate planning question, since a beneficiary of an IRA will have RMDs and taxable income. So the difference between the decedent's tax bracket and the beneficiary's tax bracket is a consideration.
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Old 10-17-2019, 06:47 PM   #8
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Isn't this another "money is fungible" thing, with the exception of a possible deduction for medical expenses? For that case, since you can only deduct the amount over 7.5% of your income, it would seem that you want to keep income lower, to push more of those expenses over 7.5%, right? You can't just deduct your LTC costs from an IRA distribution, as far as I know.

Got anything left in an HSA? That would probably be the best place to draw from if you're under 7.5%.
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Old 10-17-2019, 06:53 PM   #9
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Isn't this another "money is fungible" thing, with the exception of a possible deduction for medical expenses? For that case, since you can only deduct the amount over 7.5% of your income, it would seem that you want to keep income lower, to push more of those expenses over 7.5%, right? You can't just deduct your LTC costs from an IRA distribution, as far as I know.

Got anything left in an HSA? That would probably be the best place to draw from if you're under 7.5%.
If you are in a LTC facility, for the duration, taxes and deductibles are the least of your worries. You may well be incapacitated and not even know about taxes.

Maybe your estate (i.e. kids and what money they are looking to inherit) might care.

Since I have no kids at this time, if I am ever in for the duration, I am going to let the IRS go without.

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Way to go!
Why aspire to 'LTC nursing'. The data shows an extra 3 yrs avg., ....in a nursing home.
I'd rather be dead, ...see you at the party Senator!
I guess it all depends on where you want to be for the longest time period, and if you actually know how long you will be in the LTC facility. Or if you even know you are in it...
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Old 10-17-2019, 06:54 PM   #10
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And after reaching 7.5% then you need to exceed the standard deduction before you really see any benefit assuming you don't have other deductions.
So if your nursing home expenses were $100k that you funded via a tIRA withdawal and you had $50k other income and no deductible expenses like mortgage interest or SALT then then then your TI would be $61.25k ($150k - ($100k -(7.5% * $150k)) vs $25.6k ($50k - $24.4k)... for a MFJ couple.... so the incremental deduction is $35.65k and the tax benefit would only be $4.278k ($35.65k *12%).

I would do a proforma tax calculation both ways to see how it works out in your situation.
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Old 10-17-2019, 08:34 PM   #11
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Maybe your estate (i.e. kids and what money they are looking to inherit) might care.
Or your spouse.
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