Major Tax Change To Life Insurance And Annuities

As people in their 40’s, 50’s, and 60’s, consider their overall retirement plan, a recent tax change may affect the way they think about their retirement strategy.   It may also affect other decisions about managing the risk of needed long term care down the road.   This is one change for the positive that you absolutely will want to pay attention to for your retirement, risk management, and overall financial plan.

According to Jessie Stone of the American Association Of Long Term Care, the approved changes to the Pension Protection Act included some key provisions that took effect January 1, 2010. The changes provide significant enhancements to nonqualified annuities that are coupled with tax-qualified long-term care riders. Starting with the New Year, benefits paid out of these plans are received income tax-free when used for long term care.

This is unprecedented, and is expected to make long-term care planning highly attractive for an increased number of individuals. Prior to the new law, payments of tax-deferred gains within an annuity were taxed when paid to the individual.   In the market place, there are hybrid annuity and life insurance policies that have both the annuity and/or life insurance feature along with a long-term care rider.

Some 8.25 million Americans currently own long term care insurance purchased on either an individual basis from an insurance professional or through an employer-offered plan. (source: www.emaxhealth.com)   I believe there will be heightened interest by consumers intrigued by the concept of an insurance vehicle that can provide protection against the risk of long term care, but that can also provide cash values even in the event that no long-term care services are ever needed. This coupled with the fact of the upcoming tax changes in the recent long-term care health bill.

In addition, the law also allows for 1035 exchanges into combination plans. This is noteworthy in light of the many trillions of dollars deposited in existing annuities. (sourcelth.com)   Annuitie: www.emaxheas that provide the tax-free long-term care benefit will generally allow the individual to withdraw a limited percentage of the account on a periodic basis. For example, withdrawing two percent month from a plan with $250,000 of value would provide roughly a $5,000 monthly benefit.   These are determined individually by the annuity/insurance companies.

As a result, if your Private CFO™ (or your financial advisor) has not brought this to your attention, it is simply something you should review as part of your overall financial planning picture.

Related Articles – 5 Financial Questions To Ask Yourself Right Now , Health Care Reform Details , Did the health care bill just crush my taxes? , Life Insurance For My Children? , Do you need disability insurance?

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Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®

Co-CEO and Founder oXYGen Financial, Inc.

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oXYGen Financial, Inc. co-CEO Ted Jenkin  is one of the foremost knowledgeable professionals in giving financial advice to the X and Y Generation.  Unless otherwise noted by source, the opinions of this article are those of the author.

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About the author  ⁄ Ted Jenkin @ Your Smart Money Moves

Ted Jenkin @ Your Smart Money Moves


My friends and family all think I’m a workaholic, but I say I’m just a guy that loves to help people do better in life.

My mother is still the only one that calls me by my real name Theodore Michael, my wife calls me Teddy, but for the rest of you it is just plain old Ted.

Ever since I was a little kid, I always loved money and being an entrepreneur. In fact, I still have cassette tapes of me talking to my grandmother at the age of five and my mother tells me all the time how much I played with money as a kid...

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Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor regarding your individual situation. 

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