Using 401K funds to pay LTC insurance premium as non-taxable event

Hi Terry – Does the IRS allow a direct roll-over of 401K funds to pay LTC insurance premiums? I currently itemize so I am aware of the tax benefit of declaring this out-of-pocket expense, however I would appreciate just being able o transfer the funds directly from my 401K to pay the premium instead and foregoing the tax benefit. The only thing I have been able to find in my research is to direct roll-over to an annuity and pay the LTC premium from that. Thank you.

Terry Says:   No, you can’t get a tax break or a rollover break to pay for LTC premiums.  If you have a C corporation, you can pay premiums with pre-tax dollars.  If you have medical expenses (unlikely or you wouldn’t qualify for LTC insurance) but if you are a senior and have medical costs that exceed 7.5 percent of AGI, then you could include the premiums and perhaps get a deduction.  (The limit on deductibility of medical costs is 10% for those under age 65.)  Or if you have access to a Health Savings Account (HSA) you could transfer pre-tax money into that account to pay the premiums.