Could this account get you penalty-free 401(k) withdrawals for common retirement expenses?

401 thousand withdrawals for E.P.E

401 thousand withdrawals for E.P.E

When planning for the future, health care ranks as one of the highest concerns for both savers and retirees. Not only are health care costs rising more than 5% each year, but rampant inflation and volatile market performance have also added extra pressure on retirement savings, leaving many older Americans wondering if they can retire after all.

New legislation aims to ease some of the concerns: House Financial Services Committee member Ann Wagner (R-MO) has introduced a bill to help lower long-term care costs. More than half of people over the age of 65 are expected to need some form of long-term care by 2030, and this new bill can help pay for it.

A financial advisor could help you plan for retirement and help you determine if early withdrawal from retirement accounts is right for you. Find a qualified consultant today.

Representative introduces new bill to help long-term care

On March 16, Representative Wagner introduced the Affordable Long-Term Care Act. Long-term care ranks as the second biggest financial concern for Americans, just behind retirement savings, and this bill aims to provide favorable tax treatment to help.

Long-term care includes services designed to help people live as independently as possible when they have a serious illness or disability that prevents them from doing everyday activities on their own, such as bathing, eating and dressing. People may need long-term care after sudden episodes of illness, such as after a heart attack or stroke, but other times the need for care comes gradually as an underlying issue becomes apparent.

Half of older Americans don’t have enough funds to hire a home health aide for a year, and so many turn to buying long-term care insurance to cover any unexpected expenses. The Long-Term Care Affordability Act would allow people to withdraw funds from retirement accounts, including 401(k), 403(b), 457(b) and IRAs, to pay for long-term care insurance without paying 10% early – withdrawal penalty. It will also exclude up to $2,500 in verified withdrawals from income tax. Since the majority of Americans who buy long-term care insurance do so before retirement, this would help encourage people of all ages to plan for the future.

Why is long-term care insurance important?

401 thousand withdrawals for E.P.E

401 thousand withdrawals for E.P.E

Long-term care insurance should be strongly considered as part of your long-term financial planning, as it covers the cost of helping you with daily living when you can no longer do it yourself. You won’t qualify for long-term care insurance if you already have a debilitating condition, so you need to buy it before you need it. Medicare only covers short nursing home stays or limited home health care when you need specialized help after surgery or an injury, and Medicaid will only cover you when your income falls below the applicable low income threshold.

How retirement savers can benefit

Long-term care can quickly deplete retirement savings, so purchasing long-term care insurance can help protect your future. For example, insurance provider Genworth estimates that the 2021 national average cost for a home health aide is $5,148 per month, while getting a private room in a nursing home can cost you $9,403 per month. On the other hand, long-term care insurance premiums for a 55-year-old man average $1,700 a year and can cover up to $386,500 if you need it when you’re 85.

It may help to talk to an advisor to see if long-term care insurance is a good option for you, as there are several long-term care options that may meet your needs. If the Long-Term Care Affordability Act is passed and signed into law, you may be able to pay for your premiums with tax-free dollars, but you should strongly consider whether early withdrawal from your retirement accounts is a wise choice for your situation. In some cases it may be the most economical decision, but in others it may be better to pursue other options.


401 thousand withdrawals for E.P.E

401 thousand withdrawals for E.P.E

Long-term care is a pressing concern for many Americans, and a new bill has been introduced to address its costs. The Long-Term Care Affordability Act aims to make it possible to take long-term care insurance costs out of tax-advantaged retirement accounts without paying taxes or fees. It may be beneficial for you to consider purchasing long-term care insurance, as long-term care is very expensive and often not covered by your regular health insurance.

Retirement Planning Tips

  • Not sure if withdrawing from your 401(k) to pay for health expenses will negatively affect your retirement plans? For stable, long-term financial help, consider talking to a qualified financial advisor. SmartAsset’s free tool matches you with up to three financial advisors serving your area, and you can interview your advisor matches at no cost to decide who is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • Use SmartAsset’s free retirement calculator to get a good estimate of how much money you’ll need to retire.

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