RESEARCH

5 Tax Benefits of Long-Term Care Insurance

Kitty O’Neill Collings, an American politician and pioneer in the area of international diplomacy, civil liberties, and social justice, once quipped, “Aging seems to be the only available way to live a long life.” Along with aging comes the certainty that most of us will gradually begin to deteriorate over the years, both physically and mentally, and many of us potentially might require long-term care. Because of this reality, long-term care insurance (LTC) becomes an attractive option. The government won’t help pay for your long-term care bill. Knowing about long-term care insurance and how you can make those premiums work for you may make it easier to create a strategy in preparation for those retirement years. Here are five tax benefits of owning long-term care insurance.  

1. Potentially Tax-Free

The Internal Revenue Service (IRS) may treat your long-term care insurance benefits as tax-free based on your policy limits and how it is structured. If benefits are considered reimbursement, they are 100% tax-free. If they are indemnity or cash, they are tax-free up to a specified amount per diem (see below in the Tax Deductibility portion).  

2. Tax Deductibility

Under section 7702(b), long-term care insurance has attractive tax benefits. However, only qualified long-term care insurance policies are eligible. The maximum amount eligible for the deduction per person is based on an age-indexed schedule.   Age at the end of the tax year 2023
  • 40 or younger: $480
  • 41-50: $890
  • 51-60: $1,790
  • 61-70: $4,770
  • 71 and older: $5,960
  Benefits paid are generally excluded from taxable income. However, some cash products that pay daily or monthly benefits not associated with actual bills are subject to a per diem limitation of $420 a day. Anything over that amount is subject to taxation unless there are bills to support the higher number.  

3. Health Savings Accounts

Health Savings Accounts (HSA) are personal savings accounts where you can add pre-tax dollars to pay certain health care costs. If you have an HSA, you can pay your long-term care insurance premiums. Due to the increasing inflation in 2022, the IRS increased contribution levels for 2023 to $3,850 for individual coverage or $7,750 for family coverage, up from $3,650 and $7,300 in 2022. For those age 55 and older, you are allowed an additional $1,000 contribution for ‘catch up.’ The IRS also includes a 2023 limit for Excepted Benefit Health Reimbursement Arrangements (EBHRAs) at a limit of $1,950, up from $1,800 in 2022. However, you have to be aware that not all policies have tax incentives. Linked benefit or hybrid life insurance policies do not generally qualify for a possible tax benefit.  

4. Tax Advantages for Certain Hybrid Policies

If your hybrid long-term care policy meets federal tax guidelines (IRC Section 7702(b)), a percentage of your long-term care premium may be deductible. Also, hybrid policy benefits, for example, long-term care, are tax-free. Not all insurance companies offer this type of product, so it is critical that you review your policy and strategy with a financial professional.  

5. Self-employed Individuals

If you are self-employed, you can deduct 100% of your health insurance premiums, including long-term care insurance premiums, without meeting the 7.5% adjusted gross income (AGI) threshold. However, the deduction amount can’t exceed the net profit from your business. Below is a breakdown of how the different tax benefits can be accomplished. S-corporation – The business should pay shareholder-employee premiums and add the total premium paid to W-2 compensation. This can ensure the individual’s plan is considered an employer plan for tax purposes. It gets more complicated when premiums are paid personally. To be deductible as an employer plan on the owner’s tax return, they must be reimbursed with a written agreement for the plan. Partnerships – Premium payments through partnerships do not have to be paid by the partner. If you pay the premiums yourself, the partnership must reimburse you and report the premiums as guaranteed payments. Then, you take the self-employment health insurance age-based eligible premium deduction. Premiums paid by the partnership must be added to the partner’s K-1 as a guaranteed payment. C-corporations – Premium payments are 100% deductible from the corporate tax return and considered a reasonable and necessary business expense. The deduction is not limited to the age-based eligible premiums. Like traditional health and accident insurance premiums, this applies to shareholder W-2 employees, their spouses, and dependents, and the business pays all employee coverage. Employer-paid LTC is excludable from an employee's gross income, including the shareholder employees’ income, and the benefits are received tax-free. C-corporation paid premiums must be a 100% corporate expense to be deductible. They are excluded from shareholder employees' incomes, bonuses, expense accounts, or other compensation. Non-owner Employee – Premiums paid to any non-owner employee and spouse by any business entity are 100% deductible without any limits. Like health care premiums, they are considered a reasonable and necessary business expense. Long-term care insurance paid by an employer is not included in the employee’s gross income, and benefits are tax-free. Due to the complexity involved with the potential taxation of your long-term care insurance benefits and how this may impact you and your financial goals, it is essential that you consult a financial professional who can help provide guidance and create a strategy that aligns with your retirement plans.  

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which product(s) may be appropriate for you, consult your financial professional prior to purchasing.   This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.   All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.   This article was prepared by LPL Marketing Solutions   Sources: How Are Long-Term Care Insurance Benefits Taxed? (2023) (annuityexpertadvice.com) Long-Term Care Insurance Tax Deduction Limits Increase for 2023 - IRS Reveals Schedule Based on Age | LTC News Tax deductible long-term care insurance tax limits-LTC federal tax limits state deductions for long term care (aaltci.org)   LPL Tracking # 1-05378143  

An Essential Guide to Estate Planning Preparedness

A recent survey by Caring.com found that a whopping two in three American adults do not have an estate plan1—an alarming statistic, considering that an estate plan can protect your assets and ensure that they go to the right people. If you have not begun to prepare an estate plan, or if your estate planning efforts have stalled, what can you do to get back on track? Here are seven crucial steps to take when planning your estate.

#1: Inventory Your Possessions

To learn how your assets should be distributed, you will first need to know what your assets are. Take a notebook and go through the inside and outside of your home, listing any valuable items like electronics, vehicles, jewelry, art or antiques, precious metals, lawn and garden equipment, and tools.

#2: List Your Non-Physical Assets

Once you have listed your physical assets, make a list of non-physical assets—401(k) and IRA accounts, checking and savings accounts, life insurance policies, brokerage accounts, cryptocurrency, and anything else that exists online. Having this list of accounts will make it much easier for the executor of your estate to track down non-physical possessions.

#3: Identify and List Debts

If you make a list of all your open credit cards, mortgage or HELOC, auto loans, and any other debt you are carrying, you will also allow your executor to easily ensure that your bills are timely paid after your death. To be most helpful, include your account numbers and any contact information for those holding your debts. And if it has been more than a year since you last requested your free annual credit report, downloading this report can help you identify any debts you have forgotten about or clear up any invalid entries. Once you have completed these lists, make at least two copies and keep them in a safe place. The key is for these lists to be easily accessible when needed.

#4: Update Insurance Policies

If it has been a few years since you've reviewed your auto, homeowner, renter, or other insurance policies, you may not be carrying enough coverage to fully protect you if the worst happens. Review your coverage limits and talk to your financial professional to see whether you should be carrying more insurance.

#5: Designate "Transfer on Death" Accounts

Some accounts can pass outside the probate process through a "transfer on death" (TOD) designation. For TOD accounts, as soon as one account-holder dies, the account is transferred to the named beneficiary. Allowing your beneficiaries to receive assets without having to go through probate can often provide a much-needed financial boost during a time of grief.

#6: Choose Executor or Estate Administrator

It is important to select a responsible, detail-oriented person to serve as the administrator of your estate. This can be a relative or a third party, like a lawyer, bank employee, or financial professional. Your estate administrator will be responsible for inventorying and identifying your assets, paying off any debts, and distributing the remaining assets to heirs.

#7: Get Documents in Order: A Will, Power of Attorney, Healthcare Proxy, and Guardianship

Much of the estate planning process hinges on having the right documents in place:
  • A will, which designates the distribution of assets and can name guardians for any minor children or pets; and
  • A financial professional and/or medical power of attorney, which can allow a named designee to make financial or healthcare decisions on your behalf.
These documents provide a roadmap for your estate plan and are the best way to legally ensure that your wishes will be carried out.    
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess.
LPL Tracking #  1-05305315.
Footnote
67 percent of Americans have no estate plan, survey finds. Here’s how to get started, CNBC, https://www.cnbc.com/2022/04/11/67percent-of-americans-have-no-estate-plan-heres-how-to-get-started-on-one.html

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Year-End Planning for Retirees

As we approach the last quarter of each year, it is a good time to plan for the next one. Year-end planning is especially important for existing retirees and those hoping to retire in the next few years. There are tax and income strategies you might consider regarding your financial assets. Here are three steps you may take when planning the end of the tax year and preparing for the next one.

Consider Tax Loss Harvesting

Suppose you hold equities, with unrealized losses, in an account subject to tax. In that case, you may be able to sell these equities and harvest the tax loss to balance out any realized gains made from other stocks. Harvesting only works when the procedure is completed within a single tax year. For example, if you are sitting on a loss in one stock, you may sell it and also sell a better-performing stock with the same amount in long-term gains without triggering a tax event. This technique may lower your tax liability by using these two assets to offset each other instead of just paying taxes on the one with a gain. Be aware of the wash-sale rule that prevents the deduction of certain capital losses from an investor’s capital gains. The wash-sale rule applies when an investor sells equities at a loss and within 30 days before or after the sale date, bought or buys another equity that is substantially the same. A wash-sale occurs if a person’s spouse or a substantially controlled company buys an equivalent security.3 After enough time passes, you may avoid the wash sale rule. Then, you may buy back into the lower-performing stock if you like.2 Unless that stock had a massive recovery during the time that you did not own it; you may be able to enjoy any long-term appreciation in its future value by starting over again at a lower cost basis.

Rebalance Your Asset Allocation

In retirement, it may be helpful to review both your risk tolerance and your asset allocation. As some assets increase in value while others remain stagnant or drop, your actual asset allocation may begin to stray from the goals for your portfolio. This circumstance may require some rebalancing, such as selling overperforming funds and buying back underperforming ones. Also, evaluate the future of these sectors with your investments to see whether other investments may be a better fit for your needs.

Update Your Income, Health Care, and Emergency Expense Plans

A low-stress retirement may hinge on having access to a stable source of income, such as an annuity, a pension, or rental or other passive income. Without this, you may be at risk of major market fluctuations occurring just when you need to withdraw some cash. The end of the tax year may be a great time to revisit your income plan for the next year. Consider whether to set aside additional funds for healthcare-related expenses and evaluate how you would pay for an emergency. By having a plan in hand, you may be able to weather whatever the next year may bring.  

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. Asset allocation does not ensure a profit or protect against a loss. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy. 1 https://www.morningstar.com/articles/1045559/q2-2021-market-performance-in-7-charts 2 https://www.forbes.com/advisor/investing/tax-loss-harvesting/# 3 https://www.investopedia.com/terms/w/washsalerule.asp   This article was prepared by WriterAccess. LPL Tracking #1-05218932

5 Milestones That Mean It’s Time for a Life Insurance Review

Obtaining a life insurance policy is part of being an adult. But it’s also something that you can easily neglect, especially if you obtained it earlier in adulthood. While you may have been diligent in securing your life insurance policy, failing to review or update the policy when you have significant life changes may result in too little or too much coverage. It is a good practice to review your policy every few years to see if it still suits your needs and your family’s needs. However, it should be considered essential to review your info if you experience one of the life milestones listed below.

1. Getting Married

A significant life event that should prompt a review of your life insurance policy is marriage. When you get legally married, you are now part of a partnership and are responsible for another person in your family. After marriage occurs, you and your new spouse should review any current life insurance policies to ensure that the amounts will cover needed expenses in the event of your death so that you do not leave your partner with significant financial strain.1

2. Starting a Family

Whether you have children or plan to adopt, you will likely need to account for dependents in your policy coverage amounts. When your children are still at an age where they will need financial support, it is vital to make sure that your policy payout amounts will cover care and living expenses that they will need so that other family members will not be financially burdened when you are no longer bringing in an income to support them.2

3. Buying a Home

Homes are not only a significant purchase, but they are major ongoing expenses as well. After purchasing a home and securing your homeowner's insurance, you should quickly review your life insurance policy amounts. To provide your family with less stress in the event of your death, you may want to consider having enough in your policy to at least pay off the mortgage on your home.2

4. Starting a Business

In most cases, starting a business means that you will be taking on additional debt. In some cases, that debt may be significant. If you have partners, having a policy to cover your debt will allow them to continue with the business upon your death. Having enough coverage to cover the debt will also help prevent debtors from going after family assets to satisfy these debts, which may financially affect your family.2

5. Entering Retirement

While many life events will prompt the need to increase your life insurance amounts, there are some situations where it may be an excellent time to reduce the amount of your policy. When you are at retirement age, many policy premiums will be significantly higher unless you have a locked-in rate. You will also likely be at the stage in your life where you have less debt and will not have as many people dependent on you for financial support.2    
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess.
LPL Tracking #1-05374523

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Your Traditional 401(k) Year-End Review Checklist

A 401(k) plan is one of the most popular and effective techniques for saving for your retirement. A company will automatically withdraw and contribute money from each paycheck to your 401(k) plan. Some employers will even match a percentage of the contribution. Are you maximizing these contributions? There are also limits on how much you are allowed to contribute annually. Here is a 401(k) end-of-the-year checklist you may find beneficial in keeping up with your retirement strategy.  Review your goals There is a good chance that you have created short- and long-term goals. You may have met with a financial professional who helped you create a strategy based on the lifestyle you hope to have in retirement. To reach your long-term goals, you will often pursue short-term goals. As life changes, so might these goals, and reviewing your goals at the end of the year can be beneficial.  

Consider increasing your contribution amount

For 2023, the maximum contribution for employees is $22,500, or $30,000 if you are 50 or older. Catch-up contributions for those 50 or older are $7,500. It is possible to make non-tax deductible contributions to traditional 401(k)s above the employee contribution limit. The total 401(k) plan contributions an employer and employee can make cannot be more than $66,000 for 2023. For those 50 or older, the maximum is $73,500.  

Get a 401(k) match from your employer if it is offered

Review your plan to determine if your employer offers a 401(k) matching contribution. Typically, employers match employee contributions up to a percentage of annual income. Your employer can elect to match a percentage of contributions up to the limit or 100% of your contribution up to a percentage of your total compensation. If you are a highly compensated employee, your employer may only match up to a specified dollar amount regardless of your income. As an example of how matching works, say your employer offers to match 100% of all your contributions every year up to 4% of your annual income. If you are earning $50,000, the total amount your employer would contribute is $2,000. You can contribute more than 4%, although your employer won’t match it.   Even if you have multiple 401(k) plans with different employers, the total employee contribution plan stays the same if you have multiple 401(k) plans with different employers. Multiple plans don’t mean a higher contribution limit. The IRS adjusts 401(k) plan contribution limits annually for inflation.  

Review your beneficiaries

Life is a journey and is constantly changing. One moment you could be getting married or divorced, and the next, there could be a birth, death or a significant financial shift in the family. Years ago, you may have named a charity as one of your beneficiaries, and now it no longer exists. Because the 401(k) is in the background, you can easily forget about it. However, it is critical to review these details periodically, for example, at the end of the year to ensure the beneficiaries are current. Retirement account beneficiary designations hold precedence over will and trust directives. Suppose somebody is listed as a beneficiary on your retirement account, but someone else is on your will and trust directive. In that case, the retirement account will generally determine who gets the money.  

Maximize your tax benefits with a 401(k)

Contributing to a 401(k) is done on a pre-tax basis. This allows you to deduct your contributions in the year you make them, lowering your taxable income. However, this benefit only applies to traditional 401(k) plans, not Roth 401(k) plans. If invested, the money in a traditional 401(k) can accrue interest on a tax-deferred basis, meaning dividends and capital gains that grow within your 401(k) are not subject to tax until you start withdrawing. The RMD (required minimum distribution) age for 401(k)s is 73, expected to increase in the next few years. A 401(k) is particularly attractive if you believe you'll be in a lower tax bracket in retirement.  

Sign up for direct deposit

There are a few benefits to using direct deposit, the electronic funds transfer process where employers can transfer wages directly into an employee’s bank account. Direct deposit allows for convenience, efficiency, and potentially heightened security. However, there is always the risk of a data security breach, so monitoring your direct deposit payments is essential. There is also an element of enhanced privacy and control when you use direct deposit. Time sensitivity for receiving and cashing the check is no longer an obstacle. Money can automatically be withdrawn from the check and contributed to a savings account. Direct deposit has more pros than cons, but you should make a careful, informed decision- before deciding to use this money transfer method. A financial professional can help you determine if it aligns with your financial situation.  

Consult a financial professional

The money put into a 401(k) plan can be invested in stocks or bonds. Otherwise, it will remain in the account as cash. With any investment, risk is involved, and getting help from a financial professional can help you with managing risks that might arise and confidently grow your wealth over time. Some people may be hesitant to seek out the help of a financial professional because they think it is only for the wealthy. However, financial services can be affordable and help you save money over time.  

Important Disclosures:

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.   All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.   This article was prepared by LPL Marketing Solutions   Sources: 401(k) Contribution Limits for 2023 – Forbes Advisor 10 Tips for Managing Your 401(k) Account | Nasdaq How 401(k) Matching Works (investopedia.com)   LPL Tracking # 1-05377976

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