Long Term Care Life Insurance Purchased With IRA 401K Money

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This is the Truth Network. Welcome to Finishing Well, brought to you by CardinalGuide.com, with certified financial planner Hans Scheil, bestselling author and financial planner helping families finish well for over 40 years. On Finishing Well, we'll examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing social security, Medicare, IRAs, long-term care, life insurance, investments, and taxes.

Now let's get started with Finishing Well. Welcome to Finishing Well, with certified financial planner Hans Scheil, and today's show, it sounds a little bit complicated, but we'll make it simple, I'm pretty sure. Long-term care life insurance purchased with IRA 401k money. And so the idea of that is that you would have a life insurance policy, but one of the neat things about that life insurance policy is it can be turned into long-term care insurance. And so I don't know, as I was thinking about the biblical application to this, I think it's really amazing that the word altar in Hebrew could also be translated slaughter, because, of course, that was the place where they would slaughter the animals, that they would do these sacrifices. And it was pointing, of course, to Jesus, because, you know, Jesus laid down his life on that altar.

In other words, he was sacrificed that we would be redeemed, that we would be able to spend eternity with God, that our sins would be paid for by his slaughter. And so when you look at this particular type of coverage that we're talking about today, it's life insurance, sure enough, which in itself is a sacrifice that you're making for your family. But this being the long-term care policy sort of plan for your life is a way, as Hans says it so well, that you're able to turn to your kids when they're concerned about how you're going to be taken care of, where they're concerned about your coming down with Alzheimer's or something horrible like Parkinson's or something, and you're like, okay, it's okay, son, I've got it covered, right? That they're not worrying about how we're going to get you the care that you need, that you provided that as part of the way you sacrificed your life financially all along the way, and you had the plan, right, Hans?

Yeah. So anytime I'm throwing numbers at you and I turn this long-term care discussion into a transactional discussion, as opposed to an emotional discussion, I always want to open with, like, why are you investigating long-term care? Why are you listening to this show?

And what's the purpose? And the purpose is, if you get up there in years, and then you are not able to take care of yourself, and we need to bring in outside people, either into your home to take care of you, or we need to take you to the place that they can take care of you. And when there's no long-term care insurance in place, unfortunately, with the adult children, the whole conversation is about money. And I'd much rather have that conversation with my kids and have my family have that conversation, where we're talking about my care, their well-being. And, of course, we're going to talk a little bit about money, but it's not going to be the overriding thing, because I have long-term care insurance, and so is my wife. And so I just want to focus on the fact that you do this for your family, and you do that for the circle of people around you.

It really isn't so much for yourself, because if you've got the resources to do this, you're probably going to have the money to pay for it. You also, if we're in a situation where you don't have long-term care insurance, and you call me in to consult with the family, the adult children, with you and your spouse, if your spouse is still here, and we're having a discussion, and you don't have long-term care insurance, the first thing I need to do along with the family is convince you to spend your own money to take care of yourself, when that's a difficult discussion. You had problems with that with your father, Robby. Oh, yeah, believe me. First time we needed to go to my daughter's college, for some event, I forget what it was, and we were his caregivers, and we were like, well, Dad, we'll hire these people.

You've got plenty of money and whatever. It was so expensive, man. The first night, he kicked them out of the house, and there he went.

He was like, the first night, he kicked him out of the house, and there he was alone, and we were in Alabama. It was a highly uncomfortable situation, because just like you say, when they're actually well enough to do it, they can pay for it, but they don't like, and they don't have the mental capacity to really comprehend what all's best for them at that point in time. Okay, so we just want to open the show every time we talk about long-term care and talk a little bit about why we want to do it, and I've got story after story after story like that, and so what we're talking about today is this hybrid life long-term care insurance is best purchased with a lump sum of money. Now, we can spread it out over 10 years if that's what you want to do, or 15 years, or 6 years, so we can turn this into something you pay for every year for a period of time, but the numbers work the best. It's the best for people to just dump in a lump sum of money, and frankly, most people don't have $200,000 laying around that they can just throw into a long-term care policy.

If that's the price of getting started, they just say, no, thanks. So we have this one company that has designed a way that you can take, in this example, it's $200,000 out of your IRA, so you're going to want to be over $59.50 to buy this policy, and in the examples today, the male is 64, the female is 64. To buy this policy using IRA money, you want to be over $59.50, so you're not paying any penalties, and so it kind of works like this, is that this couple, they take $200,000, they do a rollover or a transfer, a tax-free, because it's just going from one custodian to another, to an IRA at the insurance company, and then the insurance company guarantees to deduct from that IRA $25,000 a year for 10 years.

So the math is pretty simple. That's $250,000 paid out of something that started with $200,000, so it's $50,000 of interest that you get credited over the 10 years inside of the IRA. So it's just a way to slowly distribute to yourself some of your IRA money to the tune of $25,000 a year, and so you've turned $200,000 into $250,000 at the end of 10 years, and it's all over in the life insurance policy, and the taxes have already been paid, income taxes on the money coming out of there, and now you have a long-term care life insurance policy that pays almost $7,000 a month on both of you, or each of you, for life. So there's an unlimited number of years for long-term care. That's why you're buying it. So you've got an unlimited policy.

It could go on for years. You're getting a check for seven grand every month. Now, that may not cover it 15 years from now, but it's going to cover a lot of it, and then you, of course, can make up the difference, or it is going to cover assisted living, or it's going to cover home health care at a basic level if they're bringing in home health care, and suppose you never use this.

Either you or your spouse never use this. I mean, you're not going to know that you never used it because you always have the chance of using it as long as you're alive, but if you pass away, didn't use it, your wife passes away, or your husband passes away, didn't use it, then your kids are going to be paid, if they're your beneficiaries, $232,000 after-tax money. So it's basically a refund of your premium, the $200,000 that you put in, plus a little interest. Now, that's kind of a quick explanation of something.

What are your questions, Robbie? Well, so when you describe that the money's coming out, which, you know, if you got $200,000 in a not regular IRA, then you've got a tax liability that is going to come up against that, and so if you make the lump sum, the $200,000, into this life insurance policy, how do the taxes get? Do they get paid as they do that over the period of time, or does that happen in one year, or how does that work? Well, if you, I mean, look, it happens over time. I'm going to give you an answer to your question, but I want to give you, for instance, if you took the $200,000 and you just threw the whole thing into the life insurance policy, you'd owe taxes in that year on $200,000. Yeah, that was my concern. So that wouldn't be a good thing. That'd be added to your income.

Right. You just distributed that amount. So they do it over 10 years. So they move it to the IRA at the insurance company, tax-free, and then they pull it out a bit at a time, and they pay you a pretty sweet interest rate on that to make the whole thing work out well, and so you got $25,000 coming from the IRA into the life insurance every year for 10 years, and that's going to show up in a 1099 into your mailbox every January for the next 10 years. So you're going to owe the taxes on an additional $25,000 of income, and so you're going to have to pay that out of other money. So when we sell these to people, we're usually doing a financial plan, and we help them show how that works.

But if you figured that you owed 20% to the feds and 5% to the state, that's going to be $6,000, $7,000, $8,000 worth of income taxes that this is going to generate each year for 10 years. So we're going to have to plan where that money's coming from as well. Now, we can set the policy up so that you put enough money in there that they could just withhold it from the insurance company side, but now we're getting a little bit too complicated changing the numbers around. So the answer to that is we'll help you work that out.

Okay. And the other question may be obvious, but not obvious to me, is, you know, if you're over 70, you've got minimum distributions, and so my guess is that that, does that $200,000 end up as a minimum distribution, or does that in just one year, or does this happen over the 10 years? This happens over the 10 years. So if somebody bought this, you know, let's say at 71, it was out of their IRA, okay, and you can use your IRA to buy it on you and your spouse. So they bought this at 71, and then their minimum distribution started at 73. Well, the first two years' payments don't count as minimum distributions because you're not there yet, the first two $25,000 payments.

But the third one, and after, all of those count to where your minimum distribution each year, and it may make the whole thing. Well, we got to go to a break. So we want to remind you real quick that this show is brought to you by CardinalGuide.com, and there at CardinalGuide.com, you're going to see actually the long-term care tab as well as life insurance tab. So both of these apply, but for this show, it's going to be the long-term care tab. You'll see the show notes, a video along the same exact lines, of course, how to contact Hans and Tom there at CardinalGuide, and Hans is complete, your cardinal guide to planning for and living in retirement.

So we'll be right back with a lot more on this long-term care insurance life insurance hybrid. Investment advisory services offered through Brookstone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other.

Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. Well, welcome back to Finishing Well with certified financial planner, Hans Scheil. And today's show, we're talking about a long-term care life insurance that's purchased with 401k IRA money. And Hans, this is one of many ways to obviously skin this particular cat, but it's a pretty cool one if you've got a lot of money in an IRA and you need still to be able to handle your long-term care insurance, right? Well, I think it's a good idea to have your long-term care insurance, right? Well, yeah, I mean, we've come up with this way to use IRA money to fund over a period of years, a permanent long-term care life insurance policy that's pretty rich in benefits. And we've come up with this way because when people have the money to make this single premium purchase, for most people, it's in an IRA. Now, but let's just talk about this.

This is one way to take care of the problem. And we want to talk about the benefits that this couple in this example is getting is $7,000 a month is $84,000 a year of benefits for long-term care, either home health care, assisted living, nursing home, you name it. And it's for two people. And it's for two people for life, for an unlimited. I mean, we don't necessarily know what the future brings. And there's people with dementia that are living a long time after they get dementia. And that period of time that people are living gets larger and larger and larger. So it's really an unlimited thing that we're ensuring.

But let's just take an example. Let's say one of these people used it, and it paid out for 10 years. That's $840,000 of benefits that is going to be paid out. And if it pays out $840,000, there's going to be no life insurance left after that person dies. But they put in $200,000, they collected $840,000. But what they're also left with is their spouse, who's still living, has unlimited coverage at $84,000 a year themselves.

If you had two people in that situation, you know it's $1.6 million that we're talking about. And it doesn't run out after 10 years. So there's a lot of liability here on the insurance company's part. There could be no premium increases on this hybrid life long-term care. So in other words, the company can't 20 years from now say, hey, we didn't charge you enough.

We're coming back for more. It's just it's not happening. So this is a smart investment for people that can afford it. And for people that have large IRA balances, and they don't have exactly planned out the distribution, and we could plan out the rest of the distribution or plan out the inheritance thing on the rest of your money. But today we're just talking about buying life long-term care insurance with an IRA. Now, an alternative to this might be just buying traditional long-term care insurance. And we do have one company that offers unlimited benefits. But every time we do this, and we make the comparison of what would $25,000 a year of premium buy you for 10 years of premium, what would that buy you? And it seems like it's just about seven grand a month for two people that are married for unlimited coverage. It just seems like the pricing on traditional long-term care insurance is about the same as this, with no life insurance benefit. So in other words, if you bought that plan and neither one of you used it, there's no kickback to your stay. So that option is better to go to these hybrids. Now, let's say you want to leave the IRA out of it. You have other money that you've just saved in a brokerage account. You want to buy it with a single premium. You're actually going to get more for your $200,000 than I'm talking about in this example. And we do have a video on YouTube under Cardinal Advisors that you can find that just walks you through this very show.

It's already posted. And it'll walk you through this. But we have a whole lot of other options, even different companies, is once you go to what we call non-qualified money or you're just using funds, and maybe you don't want to chunk out a bunch at once, you can pay a premium for 10 years or 15 years, still buy the life insurance, long-term care insurance. So we have a whole wide range of options. And I don't want to get too focused on that on the show because what I'm after is getting you a plan and your spouse a plan so you can sit with your kids and you can say, listen, the money part of this is all taken care of. We're going to need a lot out of you folks if one of us needs care.

There's going to be plenty to do. And I'm expecting a lot out of my kids if that time arises. But what I'm not expecting is them to have any money troubles because I've got this all taken care of for them.

Right. And that's the hard part to grasp until you've had a chance to watch one of your siblings do the long-term care with their family or you had a chance to do it yourself. You realize that it's just, especially in the season of life that the children are usually in, like you say, they're going to be in their 50s when you're in this particular situation. And their midstream career and their own children and their own responsibilities make it difficult to just be a full-time caregiver.

In today's world, it's almost impossible. And the people that do it, that quit their job or kind of quit their life and dedicate it totally to their parent, they are some worn out puppies when you, you know, and it just creates a bad situation. And it's not even best for the parents. I mean, it's not like when you have long-term care insurance, you're out of the responsibilities. We went to go see my mother just about every day.

I mean, if not every day, every other day, I mean, we went over there and had lunch and just, we spent time and, you know, usually my sister more so, you know, doing some of the physical caring for her and just looking after her and seeing that she's being well taken care of, spending time with her, loving her. I mean, that's a full-time responsibility in the sense that, you know, we take a little off of work to do it, but to take care of somebody 24 hours a day is overwhelming. And there's this other thing that, you know, probably nobody ever wants to talk about, and I don't want to talk about it, but I know it's the case because I live through it. It's called complicated grief. And I don't know if you've ever heard that term, but what it has to do is at some point in time when the caregiving overwhelms you, you want the person you're caregiving to die. I mean, that's, you know, like, I need this to be over with. I can't take it anymore.

I need this to be over with. Well, when that person dies, now you have a different thing going on in your own psyche, which is called complicated grief. Like, wait, this is what you wanted to happen, remember? And Satan's just tormenting you with this thought that you wanted this to be over with, and the only way it could be over with was if the person that you were caregiving died. And man, that is about the last thing in the world that I ever want to do to anybody in my own family is want them to, or put them in a position where their life would be a whole lot better if I got gone.

Yeah. So here I'm going to make a proposal to everyone is that if you want to call me and we talk about taking the money that you have in savings and taking part of it to put into something like this, either qualified or non-qualified, or you want to do some financial planning to get this problem taken care of, I'll help you with that and I'll make a recommendation and just start instead of talking about the same policy for everybody. Or secondly, is if you just, you're just not going for this. I'm just not cranking a bunch of money into it.

So where I'm going to end up to is doing nothing. Let me offer a compromise. It's called short-term care, recovery care insurance, where you can get one year taken care of at home and you can get one year taken care of in a facility. And a year is a lot of time and it will buy you a lot of time and buy your family a lot of time to figure out how you're going to be carried for after the insurance runs out. And it's not terribly expensive and it's going to give you a bunch of peace of mind. So we can let that be the back door that I'm going to explain that to you.

And if you want to start directly with that, call me up and we'll put a price on it for you. Yeah. And for me personally, that was my original solution because I couldn't afford the other. I could afford that and then I've had other things come along since then that were wonderful.

But nonetheless, I mean, once you've lived through this with one or two of your parents, grandparents, whatever the situation is, you're going to see that this is something that is probably headed your way. And we've done other shows where we talked about the statistics of that. But the neat thing is that really this is from my standpoint of all the things you guys handle so well.

This truly to me is something Hans, you guys handle really, really, really well and have so many different options and have really thought through. Well, I'm going to be talking about it till I'm off the air. Okay. I mean, this is coming up every seven weeks and every person that comes into my office, we talk about this and a lot of them implement stuff.

Some of them don't, but we're going to, we're going to talk about it and I'm going to give them the chance. That's just something I need to do for myself. Right.

Right. And I, you know, I, when I first started doing this show, I had no clue like what the world, but, oh my goodness. I'm so, so helpful. Well, as always, we've run out of time before we ran on the show, but we want to remind you that this show is brought to you by cardinalguide.com and there at cardinalguide.com, you're going to see the seven worries tabs. And one of those tabs is life insurance. That's kind of what we're talking about today, but the real tab that has got the show notes and all that we've talked about is there under the long-term care tab. And so there, you're going to see a video along these same lines with a whole bunch of numbers.

Okay. We barely touched the numbers in today's radio show. If you look at the YouTube on Cardinal advisors, YouTube channel on today's show, oh my goodness, they got numbers that, that you can really dig into as well as those show notes in order to discern all that's going on with that. And of course, you know, to me, one of the most valuable things at cardinalguide.com is a way to contact Hans or Tom.

And that's there as well as Hans's book, the complete cardinal guide to planning for and living in retirement. And thank you Hans, as always. I love your heart, especially on this subject and the people that, that you guys continue to help with this. Well, thank you and God bless you and your family.

Thanks Hans. The opinions expressed by Hans Shile and guests on this show are their own and do not reflect the opinions of this radio station. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such.

Any statements or opinions are subject to change without notice. Investments involve risk and unless otherwise stated are not guaranteed. Past performance cannot be used as an indicator to determine future results. Any strategies mentioned may not be suitable for everyone. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation.

Finishing Whale is designed to provide accurate and authoritative information with regard to the subject covered. Investment Advisory Services offered through Brookstone Capital Management, LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other.

Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. We hope you enjoyed Finishing Whale brought to you by cardinalguide.com. Visit cardinalguide.com for free downloads of this show or previous shows on topics such as social security, Medicare, IRAs, long-term care, life insurance, investments, and taxes, as well as Hans' bestselling book, The Complete Cardinal Guide to Planning for and Living in Retirement and the Workbook. Once again, for dozens of free resources, past shows, or to get Hans' book, go to cardinalguide.com. If you have a question, comment, or suggestion for future shows, click on the Finishing Whale radio show on the website and send us a word. Once again, that's cardinalguide.com. CardinalGuide.com. This is the Truth Network.