Two major expenses seniors face that can derail their retirement plans are taxes and long-term care.
But working those two problems hand-in-hand could provide solutions for both that seniors and their families may not have thought about, says Chris Orestis, Executive Vice President of GWG Life (www.gwglife.com) and author of the books Help on the Way and A Survival Guide to Aging.
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“There are tax deductions seniors can take advantage of that would lower their tax bill, which in turn would give them extra money to help with long-term care expenses,” Orestis says. “There are also tax-advantaged ways they can exit out of a life insurance policy they don’t need any more, which would help them solve some of the financial challenges they face.”
And, although tax-filing season has passed, now is the time to start thinking about those tax savings so they can be in place by the end of the year and be included when seniors file in April 2019, Orestis says.
Some of those potential tax deductions or strategies for seniors include:
- Costs of senior living and long-term care. If you’re diagnosed as chronically ill, some long-term care expenses can be tax deductible, Orestis says. Those expenses need to be more than 7.5 percent of your adjusted gross income, though. So, what constitutes “chronically ill”? “You must be diagnosed and under a certified care plan issued by a doctor or nurse that addresses your inability to perform two or more activities of daily living,” Orestis says. “Or you need to be suffering from cognitive impairments.” Family members may also be entitled to tax deductions if they are financially contributing to the costs of care for a loved one and qualify as a dependent, Orestis says. So it’s important to keep track of those expenses.
- Long-term care insurance premiums. Owners of long-term care insurance policies can take tax deductions on premiums they pay for qualified plans – as well as other reimbursed medical expenses such as Medicare premiums – as long as the premiums are greater than 7.5 percent of adjusted gross income, Orestis says.
- Life insurance and changes to the estate tax. Many large life insurance policies were purchased over the years as a wealth and legacy-preservation strategy to offset the impact of estate taxes, Orestis says. Prior to tax reform, the first $5,490,000 of income was exempt from the estate tax for individuals and nearly $11 million was exempt for married couples. Now exemptions have been roughly doubled to $11 million for individuals and $22 million for a married couple. “That means insurance policies currently in force to protect estates valued below the new levels are no longer necessary,” Orestis says. “This presents a chance for the policy owner to sell the policy and recoup some or all of their premium payments under more advantageous tax conditions.”
An accountant or financial professional could provide more details about whether you’re eligible to take advantage of any of these deductions or strategies, Orestis says.
“The important thing to remember is that if you’re facing long-term care or other retirement expenses that seem to be more than you can handle, you may have options you hadn’t thought about,” Orestis says. “Knowing the tax rules and how they apply to your personal situation can make a huge difference.”
About Chris Orestis
Chris Orestis, Executive Vice President of GWG Life (www.gwglife.com), has more than 20 years of experience in the insurance and long-term care industries and is nationally recognized as a healthcare expert and senior care advocate. He is a former Washington, D.C. lobbyist who has provided legislative testimony; the author of two books: Help on the Way and A Survival Guide to Aging; a frequent columnist with a currently popular series titled “The Healthcare Hunger Games”; and has been a featured guest on over 50 radio programs and in The New York Times, The Wall Street Journal, USA Today, Kiplinger’s, Investor’s Business Daily, PBS, and numerous other media outlets.