Saturday, September 17, 2022
HomeLife InsuranceDebate: Should the EARN Act Let Savers Tap 401(k)s to Pay for...

Debate: Should the EARN Act Let Savers Tap 401(k)s to Pay for LTCI?


Byrnes: We need to take steps to encourage Americans to proactively purchase long-term care insurance to provide for their own need for care later in life. This bill does exactly that. For many, retirement savings are the only means of covering these costs. 

Bloink: I also take issue with the fact that the early withdrawals can be used only to cover the cost of long-term care insurance premiums — which are often prohibitively expensive. There are many different ways to cover the cost of long-term care. An increasingly popular insurance option is the hybrid long-term care insurance/annuity product. Some of these products cost far more than the meager $2,500 limit contained in the EARN Act.

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Byrnes: The fact is, we have to limit the amount of retirement savings that can be withdrawn penalty-free. To do otherwise would give Americans license to raid their retirement accounts, which receive tax preferences only because those funds are likely going to be tied up for decades, earning interest while the account owner continues to save. Yes, long-term care insurance is expensive. That doesn’t mean that we must provide a tax-preferred way to allow taxpayers to purchase just any insurance policy.

Bloink: While I do understand that we can’t allow savers to access their retirement funds penalty-free and without limit, the proposed $2,500 limit is likely not based in reality for anyone except the healthy 40- or 50-year-old saver. For older savers, the cost of long-term care insurance may be much higher. And this provision isn’t going to do much to encourage younger savers to purchase insurance that many can’t imagine needing in the future.

We need to allow older Americans to cover the entire cost of their insurance without limit — and find ways to attract younger savers to hybrid products that contain more attractive features for those who fear the opportunity costs associated with buying long-term care insurance at a relatively young age.

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