Debate: Will Secure 2.0 Act Help Americans Pay for Long-Term Care?

Bloink: This new provision will do very little to encourage Americans to purchase long-term care insurance. First, it doesn’t become effective for another three years. Second, Americans who can afford the cost of coverage probably don’t need the incentive of a penalty-free withdrawal of $2,500 per year.

Furthermore, long-term care insurance is not popular. It tends to only benefit wealthy taxpayers who can both afford and qualify for the insurance. This new law will do very little to increase the popularity of the product and won’t do anything to help bring down the costs of sky-high LTCI premiums.

Byrnes: This provision will encourage Americans to take control of their own long-term care funding rather than planning to rely on government resources for expensive nursing care in the future. It will also draw attention to the issue itself and generate additional sales within the LTCI market.

Bloink: The law itself seems vague in that it only allows penalty-free withdrawals for long-term care protection that provides meaningful financial coverage. The term meaningful financial coverage has yet to be defined, leaving taxpayers to wonder whether their actual coverage will be considered qualified under the new law — and whether annuities or life insurance that offer LTCI riders will qualify.

Byrnes: The bottom line is that the government needed to do something to encourage Americans to take another look at purchasing a long-term care insurance policy. The buzz generated by this new law could give Americans an incentive to take a closer look at the issue, their own financial circumstances and risk factors.

Bloink: Sure, this new law may draw attention to the issue, which could allow more people to realize that they actually should address the possibility of the need for future care. Allowing the funds to be withdrawn tax-free would generate even more attention, however. All taxpayers are going to see here is that they’re still required to pay taxes on the funds and that this could end up costing them even more money.

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