Unlocking Tax Advantages: The Power of Pension Protection Act (PPA) Annuities for Long-Term Care

    | June 26, 2023


    In 2006, the United States Congress passed the Pension Protection Act (PPA), a landmark legislation aimed at providing tax advantages to consumers seeking long-term care insurance. By utilizing a non-qualified annuity policy, individuals can take advantage of a provision in the IRS tax code known as a 1035 tax-free exchange. PPA annuities offer distinct advantages over other annuities, offering tax-free distributions for long-term care expenses and providing greater leverage for long-term care benefits, often doubling, or even tripling the available funds. 

    There are many benefits and potential financial gains that PPA annuities can provide for individuals planning for their long-term care needs:

    1. Tax-Free Distributions for Long-Term Care Expenses: Under the PPA, annuity holders can receive distributions for long-term care expenses on a tax-free basis, regardless of the cost basis and gain. This means that the growth of the annuity and any gains accrued over time will not be subject to taxes when used for qualified long-term care expenses. This provision can significantly increase the amount of available funds for an individual's long-term care needs, ensuring a more comprehensive and financially secure approach to aging.
    2. Greater Leverage for Long-Term Care Benefits: PPA annuities offer substantial leverage for long-term care benefits, typically providing two to three times the value compared to other annuities. In some cases, annuities can even include a lifetime benefit, covering an individual and their spouse. This increased leverage means that individuals may be able to double or triple their initial investment for qualified long-term care expenses.
    3. Evaluating Existing Annuities for PPA Qualification: For individuals who already possess annuities, it is worthwhile to evaluate whether they qualify for a PPA annuity and if it makes financial sense for them. By considering the potential tax advantages, increased leverage, and tax-free growth of a PPA annuity, individuals can assess whether transitioning their existing annuity to a PPA annuity aligns with their long-term care planning goals. Consulting with a financial advisor experienced in long-term care planning can provide valuable insights and help individuals make an informed decision.

    The Pension Protection Act (PPA) has revolutionized the way individuals can plan for their long-term care needs by offering tax advantages through non-qualified annuity policies. PPA annuities provide tax-free distributions for long-term care expenses, regardless of the cost basis and gain, and offer greater leverage for long-term care benefits compared to traditional annuities. For individuals with existing annuities, it is important to evaluate their eligibility for a PPA annuity and determine if it aligns with their long-term care planning objectives. Seeking guidance from a knowledgeable financial advisor can help navigate the complexities of the decision-making process. Consider exploring PPA annuities and assessing their suitability for your specific circumstances to unlock the benefits of this legislation and safeguard your future needs.



    The information provided is general and educational in nature and should not be construed as personalized investment, tax, or insurance advice. You should consult with your own tax or insurance advisor regarding your personal situation. The statements contained herein are based solely upon the opinions of Telemus Capital, LLC. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Information was obtained from third party sources, which we believe to be reliable, however Telemus Capital cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. Insurance and investment decisions should always be made based on the client’s specific financial needs, goals and objectives, time horizon and risk tolerance. Current and future portfolio holdings are subject to risk. Risks may include interest-rate risk, market risk, inflation risk, deflation risk, currency risk, reinvestment risk, business risk, liquidity risk, financial risk and cybersecurity risk. These risks are more fully described in Telemus Capital’s Firm Brochure (Part 2A of Form ADV), which is available upon request. Telemus Capital does not guarantee the results of any investments. Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, and may lose value. Advisory and Insurance services are only offered to clients or prospective clients where Telemus Capital and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Telemus Capital unless a client service agreement is in place.

    Todd Wolfe

    Todd joined Telemus in November 2022 after 28 years serving in multiple roles in the insurance industry. He has been an Independent Insurance Agent, Brokerage Manager, and also Regional Vice President for two Fortune 500 Life Insurance Companies. Todd is a proud Alumni of Michigan State University and continues to learn as a student of the industry earning both his Chartered Financial Consultant (ChFC) and Certification in Long Term Care (CLTC) designations.

    Todd Wolfe twolfe@telemus.com
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