For those in the advisory community working with retired police officers, firefighters, EMTs, or other public safety professionals, the tax code provides a unique opportunity to fund Long-Term Care (LTC) Planning more efficiently.  Tucked inside the Pension Protection Act (PPA) of 2006 is a little-known provision that allows qualified Public Safety Officers (PSOs) to exclude up to $3,000 per year from their taxable income when using distributions from an eligible retirement plan to pay for qualified health or LTC insurance premiums — as long as the payment is made directly from the plan to the insurance provider.

Who Qualifies?

According to IRS guidelines, a public safety officer includes law enforcement officers, firefighters, chaplains, and members of a rescue squad or ambulance crew.  To be eligible, the individual must be retired and receiving income from a government-sponsored retirement plan (such as a 403(b), 457(b), or defined benefit pension).  They may use the tax-free distribution to cover LTC insurance premiums for themselves, a spouse, or qualifying dependents.  However, the key requirement is that the plan administrator must send the funds directly to the insurance carrier, not to the retiree.

According to IRS Publication 575, retired public safety officers can exclude up to $3,000 per year from taxable income for payments made from a governmental retirement plan toward qualified health or LTC insurance.  This exclusion is authorized under IRC § 402(l) — part of the PPA's HELPS provision. 

A Real-World Example…..

Tom and Mary are both 65 years old.  Tom served as a police officer for 30 years before retiring.  Today, the couple relies on income from Social Security and Tom's pension from the police department.  They recently implemented a Long-Term Care plan, but since they don't itemize deductions, they can't claim any of the premiums as an unreimbursed medical expense.  However, because Tom is a retired public safety officer, he's eligible for a special tax benefit.

Tom contacted his retirement plan administrator and arranged to have $3,000 of the annual Long-Term Care premium paid directly from his eligible retirement plan.  He paid the remaining balance out of pocket.  When Tom and Mary file their federal taxes, that $3,000 distribution will be excluded from taxable income, so assuming a 25% tax bracket, this strategy could generate $750 in tax savings every year they use it.

Why This Matters for Advisors

If you serve retirees who were first responders, this tax benefit can enhance plan affordability, encourage LTC planning implementation, and serve as a differentiator in your client conversations.

• Make it part of your process:
• Ask about any career services as a public safety officer
• Verify whether they're receiving retirement income from a qualifying government plan
• Coordinate directly with the plan administrator to establish direct payment
• Educate clients and CPAs on proper reporting (IRC §402(l))

This aspect of the PPA isn't just a tax perk — it's a meaningful opportunity to serve the men and women who've dedicated their careers to protecting others.  Incorporating this strategy shows you understand how to use the tax code in your clients' best interests and helps ensure Long-Term Care Planning is both accessible and cost-effective.

Share this strategy with "First Responder" clients to encourage proactive LTC Planning!!

20250709