Are you taking advantage of the Pension Protection Act?
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The Pension Protection Act (PPA) is a piece of legislation that was signed back in August 2006; however Section 844 of this legislation that specifically deals with tax advantages associated with annuities and long-term care took effect January 1, 2010. The PPA states withdrawals from qualifying annuity contracts to pay for qualifying long-term care insurance premiums or expenses will no longer be considered taxable income, but as a reduction of cost basis.
Common riders in most annuity contracts do offer “nursing home waivers” that waive any penalties to access your money if you are confined to a nursing home, but be aware, these waivers are not considered qualified under these new guidelines. In order for your annuity contract to be considered for treatment under the PPA, it must satisfy specific requirements set forth by the IRC Section 7702B(b), and that the care is pursuant to a specified plan as well. This can be overwhelming to decipher, but your licensed insurance provider can assist you in navigating through these contracts so that you can decide if one is right for you!