When families decide to forgo long‑term‑care insurance, the next step is deciding where to hold the cash that may be needed for future care. While a separate bank account can work, many experts recommend using an existing tax‑advantaged account and informing loved ones of its location.

Health Savings Accounts: Benefits and Limits

Health savings accounts (HSAs) are often the first option that comes to mind. Qualified withdrawals for health expenses, including most long‑term‑care costs, are tax‑free. However, contribution limits in 2026—$4,400 for individuals and $8,600 for families—can make it difficult for those over 50 to accumulate a sizable balance before retirement. After enrolling in Medicare, individuals can no longer contribute to an HSA because they lose eligibility for a high‑deductible health plan.

Another nuance is the interaction with the medical‑expense deduction. In 2026, expenses that exceed 7.5% of adjusted gross income are deductible. If a taxpayer takes a tax‑free HSA withdrawal in the same year they claim a large deduction, the full tax advantage of the HSA may not be realized. Finally, if an HSA passes to an heir who is not a spouse, the tax‑free status ends, potentially reducing the benefit for the family.

Traditional IRAs: Leveraging Taxable Withdrawals

Because long‑term‑care costs often push a taxpayer’s medical expenses above the 7.5% threshold, using a traditional individual retirement account (IRA) can be advantageous. Withdrawals from a traditional IRA are taxable, but the same medical‑expense deduction can offset the tax due on those withdrawals.

Most retirees already hold a substantial portion of their savings in IRAs, making this a convenient vehicle. Required minimum distributions (RMDs) begin at age 73, meaning the account will be taxed anyway at that stage. The medical‑expense deduction can therefore lessen the tax impact when the funds are used for care.

Choosing an Investment Mix

Cash alone will not keep pace with the rising cost of care. The Genworth/CareScout 2025 Cost of Care survey shows assisted‑living inflation outpacing general inflation, while other care categories see more modest increases. To preserve purchasing power, a modest level of growth and risk is necessary.

Risk tolerance should be tied to the time horizon before the funds are likely needed. Individuals in their mid‑60s, with an average 15‑year window before potential care needs, can afford a growth‑oriented portfolio heavily weighted toward equities. As they approach their mid‑70s, shifting toward a balanced mix of stocks, bonds and cash reduces volatility. When the fund is actively being drawn down, a conservative allocation—primarily bonds and cash—helps protect the remaining balance.

Practical Steps for Families

• Identify whether you have access to an HSA and, if so, contribute up to the annual limit.
• If you are over 50 and need a larger cushion, consider directing additional savings to a traditional IRA.
• Work with a financial advisor to create an age‑appropriate asset allocation that transitions from growth to preservation as you near retirement.
• Document the location of the account and share the information with trusted family members or an estate planner.

While no strategy can predict the exact timing or duration of long‑term‑care needs, aligning account choice with tax rules and adjusting investment risk over time can help families build a more resilient safety net.

Original reporting: Alexandria, VA News – WTOP News — read the source article.