By Jason R. Rundorff, CFP,Senior Financial Advisor and Elena Ramos, CPA, Principal, Naples Market Leader
You’ve spent decades building financial security. Now, as you consider moving into a Continuing Care Retirement Community, you’re facing one of life’s most significant financial decisions—and wondering if you can truly afford the peace of mind that comes with guaranteed lifetime care.
The questions keep you up at night. What happens to the proceeds from selling your home? Can you afford the entrance fee and ongoing monthly costs? Will your retirement savings last if healthcare expenses increase? You’re not alone in these concerns. Many retirees find themselves caught between the desire for security and the fear of depleting their nest egg.
What’s more frustrating is that you’ve worked hard to plan responsibly, yet the financial logistics of entering a CCRC feel overwhelming. You deserve a clear path forward—one that doesn’t force you to choose between your financial security and your peace of mind.
We understand the weight of this decision.
As advisors we do our best to combine empathetic advice with financial strategy. One of the most penetrating, weighty conversations with clients involves the timing and financial mechanics around entering a retirement community that offers ongoing healthcare. Many are choosing to move to a Continuing Care Retirement Community (CCRC), which offers a continuum of guaranteed care if and when it is needed. It’s a difficult decision, especially for clients who are still in good health, independent, and have the capacity to manage their home and financial affairs. Of late, the advisors at HBK and HBKS have been walking more and more clients through this emotional decision and its financial impact.
While the emotional component of these decisions cannot be overlooked, we find clients often become mired in logistical and financial considerations. What are the tax implications of selling our home and using the proceeds to cover the entry fee? Can we afford the ongoing costs, including for healthcare? How do we time the sale of our home and entry into the CCRC? We’ve found that with proper planning these anxieties can be mitigated. There are financial tools for helping clients bridge the sale of their home and residency in a community, and forward-looking cash flow planning can allay fears of affordability. And on the tax front, there is a little-known financial advantage when buying into a CCRC: the CCRC tax deduction.
How it works
A portion of the entrance fee and ongoing monthly fees at a CCRC may qualify as a “prepaid medical expense” and therefore be eligible for a deduction. Why? Because part of what residents pay for is access to lifetime healthcare, even if they aren’t using it yet.
The amount deductible as a prepayment for lifetime medical care is limited to the portion of the fee attributable to medical care as determined by the facility. Typically, the CCRC provides an annual statement indicating the percentage of both entrance and monthly fees that qualify as medical expenses. The nonrefundable portion of the entrance fee allocable to medical care is generally deductible in the year paid, subject to the 7.5 percent of adjusted gross income (AGI) limitation on Schedule A. Refundable portions or amounts related to housing, meals, or non-medical services are not deductible.
This deduction can also create a valuable planning opportunity to recognize other income in the same year—such as realizing gains from the sale of a residence or converting IRA funds to a Roth IRA—while offsetting the resulting taxable income.
Not to be overlooked
For retirees making a decision to move into a CCRC, this is an opportunity that should not be overlooked. The CCRC tax deduction doesn’t just ease the burden of today’s expenses. It’s a tool that makes the promise of lifelong care more financially sustainable, as well as provides additional cash flow that can ease the concern of outliving your retirement savings.
Of course, each person’s circumstance and concerns are unique; as is each CRCC and how they account for medical costs. As you consider a move into a care community, be sure to work with a tax advisor that understands the nuances of the CCRC deduction and a financial advisor to assist with cash flow and affordability analysis.
Ready to experience financial clarity and peace of mind?
Our experienced team of tax professionals and financial advisors at HBK and HBKS has walked many clients through this critical phase of life. We’d be happy to help you and your family understand the related issues and challenges and develop a plan for a financially sound retirement future.
Schedule your consultation now to discover how the CCRC tax deduction can work for you.
Each person’s circumstances and concerns are unique, just as each CCRC accounts for medical costs differently. As you consider this important move, working with advisors who understand both the tax nuances and the broader financial picture can transform confusion into confidence—helping you move forward with clarity and peace of mind.
For more information, contact Jason R. Rundorff at (239) 919-1268, or jrundorff@hbkswealth.com; or contact Elena Ramos at (239) 263-2111 or eramos@hbkcpa.com.
Important Disclosure:
The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.
HBKS Wealth Advisors is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.
The historical and current information as to rules, laws, guidelines, or benefits contained in this document is a summary of information obtained from or prepared by other sources. It has not been independently verified but was obtained from sources believed to be reliable. HBKS Wealth Advisors does not guarantee the accuracy of this information and does not assume liability for any errors in information obtained from or prepared by these other sources.
Investment Advisory Services offered through HBK Sorce Advisory LLC, d.b.a. HBKS Wealth Advisors. Not FDIC Insured – Not Bank Guaranteed – May Lose Value, Including Loss of Principal – Not Insured By Any State or Federal Agency.
