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Pension Protection Act

Pension Protection Act of 2006

Made changes to the Internal Revenue Code

Effective for Tax Years after 2009

Combine Deferred Annuities and Life Insurance with LTC Coverage

Distribution and Exchange Tax Rules

Changes took effect January 1, 2010 and ensured two things:

Distributions from a deferred annuity or life insurance policy to pay for certain LTC Insurance coverage are NOT includible in current gross income

IRC Section 1035 is broadened to permit the tax-free exchange of a life insurance policy, an endowment or annuity contract, or an existing qualified LTC insurance contract for qualified LTC insurance contract.

Modified Endowment Contracts (MEC’s)

The Pension Protection Act of 2006 changed the unfavorable tax treatment for tax years after 2009 when a distribution from the cash value of a deferred annuity of life insurance policy is used to pay for qualified LTC insurance coverage.

Such distributions will not be subject to immediate taxation or the premature distribution tax penalty.

Permitted Tax-Free Exchanges prior to January 1, 2010

From To
A Life Insurance Policy A life insurance policy

An endowment contract

An annuity contract

An Endowment Contract An endowment contract

An annuity contract

An Annuity Contract An annuity contract

Permitted Tax-Free Exchanges as of January 1, 2010

From To
A Life Insurance Policy A life insurance policy

An endowment contract

An annuity contract

A qualified LTC insurance contract

An Endowment Contract An endowment contract

An annuity contract

A qualified LTC insurance contract

An Annuity Contract An annuity contract

A qualified LTC insurance contract

A qualified LTC insurance contract A qualified LTC insurance contract

 

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