In my last Sixty And Me blog, Do You Need a Long-Term Care Plan? I noted there are three sources of money to pay for long-term care:

• Your own money
• Government sources
• Insurance

I’ll cover more details about using your own money to cover these expenses in this blog.

Your Money: Sources

A U.S. government study found that about half of the money used to pay for long-term care costs comes from:

• Regular savings
• IRAs and 401(k)s
• Pensions including Social Security
• Health savings accounts
• Proceeds from a home sale
• Reverse mortgages

Here are some ideas for using each of these.

Regular savings Versus IRAs and 401(k)s

When it comes to retirement savings, it’s all about when you pay taxes on the money. You’ve already paid taxes on the money you deposit in a regular savings or investment account. Each year you also pay taxes on interest earned or any capital gains if an investment was sold.

IRAs and 401(k)s are different. Money put in these types of accounts does not get counted as taxable when deposited. Also, any interest or investment gain is not taxed until the money is taken out in the future. IRAs and 401(k)s were created this way to motivate people to save for retirement.

Congress also added a second kind of account called a Roth IRA. With this type, taxes are paid on the money before it is deposited. Still, any interest or investment gains are not taxable when the money comes out. Many people like Roth IRAs for this reason.

When considering how to pay for long-term care, the “pot” you take the money out of makes a difference. For example, taking money out of a regular savings, investment or Roth IRA account first may result in a better tax situation.

Pensions

Prior to IRAs and 401(k)s, pensions were the main source of retirement income for many people. However, the number of pension plans decreased over the years because employers found them to be very expensive. Social Security is also a pension but with the federal government as the payer.

There are still some employer-sponsored pensions around. Those lucky enough to have one need to calculate how such a private pension and social security factor into the equation of paying for long-term care.

Health Savings Accounts

You may have heard of a Health Savings Account (HSA), but did you know it can be used to help pay for long-term care costs?

HSAs were created as a way to save money for out-of-pocket healthcare costs of a high deductible health plan (HDHP). In fact, an individual or family must have an HDHP to open an HSA.

Health savings accounts are very attractive because money can be saved entirely tax-free if used to pay for qualified healthcare expenses. Certain long-term care costs and long-term care insurance premiums are among such qualified expenses. However, there are some rules to keep in mind, so educating yourself about HSAs makes sense.

Proceeds From a Home Sale

For many people, a home often is the biggest asset they own. Therefore, it is not unusual for an individual needing long-term care to sell their home to pay for those care costs.

When selling in this situation, here are some tips to keep in mind:

• Homes often need updating and repair to get a good price. This can take time, so be ready for a longer sales process.
• You could just sell your home “as-is,” but you need to judge if the costs saved by not updating and repairing outweigh the increased selling price.

Reverse Mortgages

In a reverse mortgage, a homeowner borrows money based on the home’s value. In this case, the person needing long-term care does not need to sell the house to get funds to pay for care. However, when the person moves out permanently or the home is sold, the money needs to be paid back to the lender.

Reverse mortgages can be complicated, so it makes sense to carefully compare options, fees, and interest rates from multiple lenders to find the best loan for you.

When using your money to pay for long-term care, there are many details to keep in mind. Therefore, finding an experienced financial professional makes sense to help you sort through all the options.

Have you considered how you will pay for long-term care when it becomes necessary? Do you have the money to pay for it out of pocket? What financial bucket will you use?