I’m not a fan of reporting legislation, but this piqued my interest.
Sen. Pat Toomey (R-PA), a member of the Senate Finance Committee, is working on a bill that would allow plan participants to withdraw funds from their 401(k), 403(b), 457(b) and IRA accounts to pay for long-term care insurance (LTC) without being subject to the 10% early withdrawal penalty.
The legislation that will be introduced in the next few weeks will 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 participant, their spouse or a dependent.
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.
I’m conflicted by this legislation because I don’t like retirement plan leakage, but the fact is that long term care costs are a concern especially when there is a good chance that most participants will need it.