Withdrawing Money From Your Retirement Account Before You Retire Isn’t Such A Bad Idea If You Are Using The Money To Pay For Long-Term Care Insurance

Millions of Americans look toward retirement with trepidation. They have no retirement savings and no long-term care insurance, and if they are close to retirement age, it is probably too late to get them. The most likely scenario for retirement is that they will live a meager existence on their Social Security income. If they need to enter a nursing home, they will either have to sell their house, if they own a house, or enter as a Medicaid beneficiary, which means forfeiting their Social Security check and, most likely, their estate. If you have either of those things, a retirement account or a long-term care insurance policy, you are in a better position than most. A new law makes it easier to have both. Withdrawing money from a 401(k) retirement account usually carries a heavy tax penalty, but if you are in your 50s, you can withdraw up to $2,600 per year tax free to pay for long-term care insurance premiums. For help strategizing about how to pay for long-term care, contact an Orlando estate planning lawyer.

Why Long-Term Care Insurance Is So Important

Long-term care is one of the main reasons for retirees running out of savings. If you have a retirement account, it is easy to limit yourself to spending only three or four percent each year of the balance your account had when you retired, as long as you are healthy. Once you suffer an illness serious enough to require you to spend time in a skilled nursing facility, or once you need help with two or more activities of daily living, the costs increase substantially. Furthermore, if you decide to move to an assisted living facility, with or without selling your forever home, long-term care insurance is the most affordable way to do it. The yearly premium for long-term care insurance is less than a month’s rent in an assisted living facility.

Keep the Money in Your Retirement Account If You Can

Withdrawing money from your retirement account should be a last resort, even if it is a tax-free withdrawal. The goal is for the balance of your retirement account to be as high as possible when you retire. Your best option for being able to afford long-term care insurance without having to withdraw money from your 401(k) to pay for it is to buy long-term care insurance when you are as young and as healthy as possible. If that ship has sailed, another affordable option is to buy hybrid life insurance. It pays for up to five years of long-term care, the unused portion of which becomes a death benefit payable to the designated beneficiary.

Contact Gierach and Gierach About Long Term Care Insurance

An estate planning lawyer can help you figure out how to afford long-term care insurance.  Contact Gierach and Gierach, P.A. in Orlando, Florida to discuss your case.

Source:

cnbc.com/2025/12/30/early-401k-withdrawals-ltc-insurance.html