rapid fire
Retirement Living Tax-Free Care
Section 1035 of the tax code allows for the tax-free use of funds in a life insurance policy (with cash value) or an annuity contract to pay the premiums of a qualified long term care (LTC) insurance policy.
Typically, funds withdrawn from a life insurance or an annuity policy trigger a taxable event. Life insurance and annuity funds represent two “flavors” of money. One flavor is the money you paid in premiums, and that money already was taxed. Withdrawal of this money is not taxed again. The other flavor is the “gain” on the funds. This money hasn’t been taxed and is taxed upon withdrawal. Under Section 1035, both flavors of money withdrawn from life insurance or annuities can be used without a taxable event to pay for LTC insurance.
The more gain you have in your life insurance or annuity funds, the better your tax benefit. Depending on your situation, it might be better to use the life insurance or annuity funds to purchase a separate LTC policy rather than add a rider to your current life insurance or annuity policy. (Tax code details make the rider option less beneficial.) Keep in mind, funds transferred this way to pay for a LTC policy cannot also be used as a medical-expense deduction when you file your taxes.
Speak to your annuity, life insurance, and LTC companies about how to make this happen.
— Lt. Col. Shane Ostrom, USAF-Ret., CFP®
Saluting Children
To celebrate DoD’s Month of the Military Child, MOAA paired this year with U.S. Army Garrison Ansbach, Germany, which sponsored a military family essay contest. A winning essay was chosen from each of three age groups — child, teenager, and adult.
Heather Leiby, essay contest coordinator, says the winners truly embraced and overcame the challenges of military life.
“Their stories told of enduring separations ... joyful reunions ... friendships made in different schools ... and a bond forged through the challenges faced.”
DIGITAL EXCLUSIVE
Read the winning essays about military life.
Click here to open an extra magazine page with the essays.
26 MILITARY OFFICER APRIL 2012
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