Taxes and long term memory care.

Do not put your money into ROTH to draw down! If coming from a qualified retirement account, you WILL pay taxes on the conversion! Depending on how the account is characterized, you will pay taxes on the entire withdrawal if qualified retirement money. You may pay capital gains on the sale of the stock/bond depending on your income. Generally, the facility will give you information at the end of the year telling you the % of amount paid is considered "medical" which may be deductible from your income taxes. Usually 35%-45%, but could be more at a memory care facility and level of care provided.

Hershey, that depends on how the stocks and bonds are held. Are thrpey in tax deferred accounts?

In any event, i believe you would have to pay captal gains taxes. Do you have an eldercare attorney working with you?

I believe that would be the best investment right now. Your husband may need to apply for Medicaid at somepoint and you dont want this illness to impoverish you.

If your husband's investments are managed by a financial management company there may be access to advice from eldercare attorneys through that company at reduced cost to investors. Even if funds are taxable, deductions are allowed for medical reasons which include care for disabled individuals. The test is inability to perform a set of basic functions unaided. The deductions for medical expenses have an exclusion of a certain percentage of annual income that is different depending on the age of the taxpayer. A tax accountant would now this and tax preparation software also calculates this. If you call the IRS they will find you chapter and verse in the tax code that apply and read that to you over the phone, though I find that they do not give advice. So far, I've been ok with the deductions for medical expenses, and they are so high that I am sure my mother's taxes come under scrutiny.

Talk to a tax advisor. The money that may be taxed may be offset by medical costs. Its to complicated to answer in a forum you need to see a professional

Hershey, the taxes on withdrawing funds doesn't change as a result of your husband's illness. Short or long term gains in non pension accounts still apply as does full taxation on withdrawals from pension accounts. HOWEVER, there is the opportunity to deduct costs for the care of your husband -- that is a large portion of the costs of memory care. Any memory care facility you are considering will be able to show you this as will your tax accountant. Good luck.

Hershey addressed only stocks and bonds; I'm only familiar with stocks and mutuals, so my response will be limited to those aspects. Hershey didn't mention IRAs, so I'm not sure those are under consideration as sources of funding.

Whether you would owe cap gains on withdrawals depends on various factors beyond the federal tax allowance for medical expenses.

1. When did you purchase the stocks? Do you know what your basis is? This is the time to (a) contact the management of the stocks (brokerage, mutual fund, etc.). and (b) ask if they calculate basis routinely. Vanguard does.

Determining your "basis" is the first step in determining whether or not you'll have gains to consider.

Then you need to estimate how much gain there would be between the basis and the market price per share on the day the stocks are sold. Since you haven't done that yet, as a sample, find the closing price (online at the stock or mutual fund holder's website) and calculate what your gain would be if you sold today.

You can also use the closing price to estimate how much you'd need to withdraw, and see how much gain you might have.

If you bought the stock in the last few years, the cap gains would be much smaller than if you bought them 10, 20 or 30 years ago.

This is really the first issue to address in considering whether or not you'd have to pay capital gains tax on any withdrawals.

2. If you do your own taxes, and keep any kind of running estimate on them for this year, and if you have fixed income, you can guesstimate how much you might owe in cap gains.

At one point, I did this with an Excel spreadsheet. Income was input regularly - SS monthly, dividends quarterly, semi-annually and annually. Deductions were input whenever I could get the time. The old Excel version I used allowed linking of sheets, so that whenever I entered a dividend, it automatically updated the Schedule B and the 1040 I also set up in the program.

So, I could at a glance get a good idea what the tax obligations were at that time.

3. Do an estimate by either roughing out a proposed 2016 tax (it can't be exact because you don't have all the figures or the 2016 forms) to find out if you're even close to having to pay tax on the gains.

4. Then do an estimate of what the medical deductions might be if you do use a facility for care.

5. It sounds complicated, and it can be. The reason why I went into detail is to address the sometimes convoluted steps you'd take if you spend time doing this on your own, so you can make the determination whether you want to do the estimates or get advice from a tax advisor or CPA.

6. I know nothing about calculating gains on bonds - I assume you mean commercial bonds and not savings bonds. So I'll leave that area to someone more knowledgeable.


It sounds as though you have a lot on your plate now and don't have much time for reading IRS pubs and contacting your broker or fund holder.

So if you have a tax advisor who does your taxes, I would use that route so you can make a decision without having to do a lot of calculations, and also you can be hopefully be free from the anxiety of addressing a whopping capital gains tax at the end of 2016.

On another note, I wish you and your husband peace of mind and body as you continue this unpleasant journey. I hope you're both getting some respite and help with the challenges that end of life brings.

Do you mean rectal cancer? If he has been in hospice for 10 mos., he has outlived the usual 6 mos. diagnosis. Keep him at home, get daily care for him, and put your money (from stocks/bonds) into a Roth IRA which allows you to withdraw funds without paying taxes. Do that now! Hang in there!

GardenArtist, I am a Financial Adviser and although I agree with most of your comments, I think an individual in their 80's or 90's would find them very confusing. I would bet that they wouldn't even know what an Excel spreadsheet is. If this were my client, I would team up with their tax accountant (CPA) and devise the best plan for the both of them. Good information though!!

PT, thanks for that insight. One thing I was trying to convey was that the issue is a bit too complex for someone with the challenging task of caring for someone to be considering - time to get a pro to help. Knowing a few people in that age range who do handle complex tax matters,though, I think there might be people who do understand the issues, but it probably would require more background in taxes than the OP has an opportunity to develop at this demanding point in her life.

And sometimes it's hard to explain those kinds of issues in a way that everyone can understand; I've thought about that but haven't found a solution to better explain those issues.

Don't stop trying to help. At least you care.