Tax Day: How You Can Save Big at Pomperaug Woods

Did you know there are certain “tax day” financial benefits to moving into a LifeCare® community like Pomperaug Woods? Certified Financial Planner™ Brad Breeding breaks down some costs, questions and concerns for you below.

If you’re interested in learning more about LifeCare, Brad Breeding joins us here at Pomperaug Woods on May 17. 

Q: Are there certain medical expenses in a retirement community that are tax-deductible?

A: There are two aspects involved in answering this question. First, there are some Continuing Care Retirement Communities where a resident living independently – i.e. not receiving care services – may be able to deduct a portion of their monthly fee for what essentially amounts to a “pre-payment” of future care expenses. A sizable portion of the entry fee may also be deductible for the same purpose.

There are certain types of residency contracts, typically referred to as LifeCare, where such a deduction is more applicable than it would be with other CCRC contract types. When this type of deduction is possible, the community will send out a letter to residents each year describing the deductible amount, but residents should still consult with a tax professional to determine if they qualify.

The other aspect is when a resident receives and pays for care services. Again, it depends on the type of residency contract. Whether living in a CCRC or not, people are generally able to deduct eligible medical expenses that exceed 10% of their adjusted gross income. See IRS Publication 502 for more detail.

Q: Monetary decisions should contribute in choosing a retirement community. What are some of the most popular considerations seniors should know about?

A: In addition to possible tax deductions described previously, it’s important to understand exactly what is covered under the monthly fee at the retirement community, and what’s extra. With this information, a person is in a better position to do a proper analysis of what they’re paying to live at home, compared to what it will cost them to live in a retirement community. Some people don’t stop to think about the fact that much of what they’re paying for at home will be covered under their monthly fee at the retirement community, so the cost of moving to the retirement community may be less than they expected once they factor this in.

Also, it’s important to understand if and how fees could adjust over time, particularly when
care-related services are received. This gets back to the point about the type of residency contract. Some contracts (LifeCare) include all care services in the monthly fee, which may be thought of as an all-inclusive contract. Others (e.g., Fee-for-Service) require residents to pay the full cost of such services, possibly in addition to the monthly fee. In a sense, it comes down to pay now or pay later, but understanding specifically how the contract works helps avoid any surprises.

Q: You’ve met seniors across the country, and have heard their concerns when it comes to choosing a retirement community. What are the most common questions you hear and the best advice you can give to them?

A: The most popular question I get is whether someone can use their long-term care insurance in a CCRC. The answer is yes, but there may be limits on how much of it can be used. I don’t want to sound like a broken record, but this also depends somewhat on the type of CCRC contract. With a LifeCare contract there may be only a certain portion of the monthly fee that’s a reimbursable long-term care expense. However, with a fee-for-service contract – where the resident pays the full cost for care services – a long-term care policy will typically cover these expenses up to the policy limit. The policy can be quite beneficial under either scenario. Under a LifeCare contract, a resident could conceivably pay less each month than they paid before receiving care services, once you factor in the long-term care coverage.

Regarding long-term care insurance, it’s important to also know how your policy classifies a continuing care retirement community, or even if it defines it at all. If the policy makes no mention of continuing care retirement communities, it’s advisable to speak with a representative of the insurance company to find out if there would be any restrictions. And you may even want to have it in writing.

Q: You’ll be at Pomperaug Woods for a speaking event on Wednesday, May 17. What do you hope will be the biggest take away from this event?

A: I hope the biggest take away is that there’s no single solution that’s right for everyone. Understanding the options, thinking through various scenarios and planning, is so important to avoid difficult and often costly situations in the future. Far too many families don’t do this, and it can lead to some tough decisions.