In this article we outline thoughts and questions to consider with your tax and financial advisors if you are considering a withdrawal from your Traditional Pension Plan to pay for your Entry Fee in a CCRC or Life Plan Community.
Please note: While this page is not tax or financial advice, it is meant to give you a good baseline for a conversation with financial professionals who specialize in tax and retirement account management. A few hours of time with a tax or other licensed financial professional could save you a lot of money in unexpected tax consequences.
Traditional Pension Plan Overview
If you are thinking of ways to pay for your Entry Fee to a Life Plan Community or CCRC, you may be considering accessing the funds you have accumulated in a Traditional Pension Plan. Often, the year you move into a retirement community you may consider a larger than average withdrawal to cover your Entry Fees, Purchase, or Deposits. This may create more taxable income. Reviewing the below questions and thoughts with your financial advisor can help you get a head start to smart planning!
Do I have a Traditional Pension Plan?
A traditional pension is a defined benefit plan where the employer sets aside money to invest on behalf of their employees, and the employees become eligible for a payout after meeting certain criteria like age and length of service. The amount of the pension often depends on the amount of the employee’s salary.
Things to consider when withdrawing funds from a Traditional Pension Plan.
What portion of my annually received pension amount will be taxable?
Generally, pension payments to you once eligible, are taxable at your marginal income tax rate.
Can I take out a loan against my Traditional Pension?
You cannot borrow money from a traditional pension.
Eight questions to ask your tax or financial Advisors before withdrawing from your IRA account to pay for your Entry Fee:
1. What kind of pension do I have?
2. Do I have the option to take out a lump sum payment from my pension in lieu of monthly payments?
3. If I can draw down a lump sum, how much can I draw without going into a higher income tax bracket?
4. If I do go into a higher income tax bracket what is the likely:
(a) additional federal or state income tax?
(b) Medicare surcharge?
(c) additional portion of my social security income that could be taxed?
(d) higher capital gains taxes if I sell stock during the year because I am in a different tax bracket?
5. Does my community determine an annual ratio of medical expenses to total expenses that I can share with my accountant? If so, can I use this information to deduct a portion of my entrance fee and/or monthly fee from my income as a medical or other expense?
6. Can I take advantage of this deduction if I do not itemize and simply take the standard deduction? Or do I have to itemize and is it worth itemizing?
7. Do I have other means to fund my move into my CCRC or Life Plan Community and pay for my Entry Fee?
A Bridge Loan could be another financing option if withdrawals from retirement accounts are not recommended by your financial advisors.
If after consulting with your tax or financial advisor withdrawing from retirement accounts or selling your securities is not something you want to do, there are other funding options. Second Act provides a Home Equity Line of Credit that can act as a bridge loan to help you pay for your CCRC or Life Plan Community Entry Fees so you can move in first and have the time you need to list and sell your home for the best possible price.
With fast approval, competitive rates, and a special focus on serving seniors, we could help because we understand. Contact us today to learn more about how we can help you navigate your journey to a rewarding retirement.
The information in this page is not meant to serve as financial, tax, or personal financial planning advice. No decisions should be made from reading the information on this page. Decisions should be made after careful analysis and consultation with your financial, tax, accounting, or other professional advisor licensed to provide retirement advice.
Second Act is a Division of Liberty Savings Bank, F.S.B. Member FDIC. Lending and loan services provided by Liberty Savings Bank, F.S.B. NMLS # 408905. Equal Housing Lender. All other services provided by Second Act Financial Services, LLC. This information is current as of 1/01/2023. Subject to credit and loan approval. Conditions and limitations apply. Information, rates and terms are subject to change without notice. © 2023 Second Act Financial Services, LLC. All Rights Reserved.