The new $1.7 billion 2023 omnibus appropriations bill includes the Setting Every Community Up for Retirement Enhancement (Secure) 2.0 Act of 2022. Within that act is a provision that could help some clients pay for long-term care insurance.
The provision would let a 401(k) plan participant use up 10% of the "nonforfeitable accrued benefits," or up to $2,500 of the total, to pay premiums for inflation-adjusted long-term care insurance coverage that met federal quality standards.
The participant would have to include the distributions in taxable income but would not have to pay the 10% tax penalty on early 401(k) plan asset withdrawals.
The omnibus bill — the Consolidated Appropriations Act 2023 bill — includes legislation needed to fund and operate the federal government.
Senate Majority Leader Chuck Schumer, D-N.Y., said the government must pass the bill by the end of the week to avert a government shutdown.
What It Means
Clients who are thinking about buying LTCI coverage could get a small boost from CAA 2023.
Legislative Mechanics
Senate drafters put the LTCI premium provision on page 2,305 of the 4,155-page PDF version of the CAA 2023 bill, in section 334 of Division T.
The Senate Appropriations Committee has posted a version of the text here.
Division T is the Secure 2.0 Act of 2022 part of the omnibus. The LTCI premium version in the bill is based on the language in section 213 of the Enhancing American Retirement Now Act bill, or EARN Act bill.
The EARN Act LTCI premium provision was based, in turn, on S. 2415, a bill introduced by Sen. Pat Toomey, R-Pa. Toomey is retiring from the Senate at the end of his current term.
One major difference between the version in the omnibus bill and S. 2415 is that Toomey wanted to keep the 401(k) plan distributions used to pay LTCI premiums out of taxable income.
