When a client tells you they're considering moving into a Continuing Care Retirement Community (CCRC), the conversation may initially sound like a housing decision.

It isn't.

The type of CCRC contract the client chooses can affect future long-term-care costs, retirement cash flow, estate values and even the client's income-tax planning. And one of the most easily overlooked opportunities may be a potentially significant medical expense deduction associated with certain CCRC entry fees and monthly charges.

During a recent Financial Experts Network webinar, Larry Pon, CPA/PFS, CFP®, EA, USTCP, AEP®, and Brad Breeding, CFP®, explored what advisors should understand about CCRC contracts, medical deductions and the planning opportunities that can arise when a client makes the move.

The biggest lesson for advisors?

Don't wait until tax season to learn that your client moved into a CCRC.

First, Understand What the Client Is Buying

Continuing Care Retirement Communities—also increasingly called Life Plan Communities—are different from many traditional senior-living arrangements.

A CCRC typically provides access to a continuum of care that may include:

• Independent living
• Assisted living
• Skilled nursing

Rather than signing an entirely new arrangement every time care needs change, residents generally enter into a continuing care agreement that provides access to multiple levels of care, often on a priority basis.

But that doesn't mean all CCRCs work the same way.

Far from it.

Type A, B or C? The Contract Matters

Brad explained three common approaches.

A Type C, or fee-for-service contract, generally requires the resident to pay the full cost of additional care when it is needed. The upfront cost may be lower, but expenses can rise substantially if the resident later needs assisted living or skilled nursing.

A Type A, or life care contract, generally requires a higher upfront or monthly payment but includes much more of the future cost of care. That can provide valuable predictability for retirement planning.

A Type B, or modified contract, falls somewhere between the two. The resident might receive a certain number of days of care at no additional cost or pay a discounted rate for future care.

The entry fee can vary just as much.

Some contracts have a declining refund, eventually reaching zero. Others might guarantee that 50%, 75%, 80% or even 90% of the entry fee will ultimately be refunded.

Those differences can affect much more than the client's heirs.

They may also affect the client's tax deduction.

The Medical Deduction Many Clients May Not Know About

Under certain qualifying CCRC arrangements, a portion of the client's entry fee and ongoing monthly fees may potentially qualify as a medical expense.

The key word is portion.

The client doesn't simply deduct the entire $500,000 entry fee or every dollar of monthly CCRC expenses.

Instead, the potentially deductible amount is generally the portion properly attributable to medical care under the qualifying lifetime-care arrangement.

IRS Publication 502 recognizes a special rule for lifetime-care arrangements. A portion of a lump-sum or monthly life-care fee may be treated as a medical expense when it is properly allocable to medical care and paid under an agreement requiring the facility to provide lifetime care that includes medical care.

Medical expenses are then deductible on Schedule A to the extent total qualifying expenses exceed 7.5% of adjusted gross income (AGI).

For clients paying substantial CCRC entry fees, the numbers can become meaningful very quickly.

The CCRC May Do Much of the Calculation

Advisors don't necessarily have to determine the medical allocation themselves.

Brad explained that established CCRCs commonly provide residents with an annual allocation statement or letter indicating how much of their qualifying fees relates to medical care.

The facility may calculate a percentage based on its healthcare expenditures and provide residents with documentation to give to their tax preparers.

That documentation is important.

Larry stressed throughout the webinar that significant medical deductions should be supported with appropriate statements, invoices and other records.

For advisors, this creates a simple question to add to the CCRC checklist:

Does the facility provide an annual medical-expense allocation statement?

A Large Entry-Fee Deduction Can Create Another Planning Opportunity

Here's where the discussion becomes particularly relevant for financial advisors.

Suppose a client pays a substantial CCRC entry fee and qualifies for a large medical expense deduction.

The client may have far more deductions than usual that year.

That's good—but only if those deductions actually provide a tax benefit.

Larry emphasized that unused medical deductions generally don't simply carry forward into future years. If the deduction isn't effectively used in the current year, part of its potential tax value may be lost.

That creates an opportunity for proactive income-tax planning.

Could This Be a Roth Conversion Year?

One strategy Larry highlighted was a Roth conversion.

If the client's large CCRC-related medical deduction significantly reduces taxable income, it may create room to convert part of a traditional IRA to a Roth IRA while potentially offsetting some of the additional taxable income with the deduction.

That doesn't mean every client entering a CCRC should immediately complete a Roth conversion.

Far from it.

The advisor and tax professional need to model the client's complete situation, including AGI, marginal tax rates, Medicare considerations, state taxes, other deductions and the amount of the medical expense that will actually be deductible.

But it creates an important planning question:

If the client has an unusually large deduction this year, is there income we strategically want to recognize while that deduction is available?

Capital Gains May Be Worth Reviewing Too

Roth conversions weren't the only strategy discussed.

Larry also suggested reviewing appreciated investment positions.

If the client has a significant medical deduction, it may be an opportune year to realize some long-term capital gains, depending on the client's taxable income and applicable capital-gains bracket.

Again, this requires careful modeling.

The larger lesson is that advisors shouldn't look at a CCRC medical deduction in isolation.

It should become part of the client's overall tax plan for that year.

Be Careful With Highly Refundable Entry Fees

This is another reason advisors need to read the actual CCRC contract.

Larry and Brad discussed situations involving 90% unconditionally refundable entry fees.

If the arrangement is structured as a loan—for example, through a promissory note—the payment may not qualify for the same medical deduction.

Similarly, if the facts demonstrate that the facility's medical services are funded solely through monthly fees rather than the entrance fee, the entrance fee itself may not produce the anticipated medical deduction.

As Larry repeatedly emphasized:

Read the contract.

The headline entry fee alone doesn't tell you enough.

The Tax Benefits Can Affect the Lifetime CCRC Analysis

Brad demonstrated this point using a financial projection for a hypothetical couple entering a CCRC.

In his example, simply incorporating the potential tax benefits associated with qualifying entry and monthly fees increased projected ending assets by approximately $400,000 over the couple's lifetime compared with the scenario that ignored those tax benefits.

That's an illustration, not a guaranteed result.

But it demonstrates why advisors comparing CCRC options shouldn't focus solely on:

"What's the entry fee?"

A better analysis may ask:

"What is the estimated lifetime cost of this contract after considering care costs, refunds, taxes and the client's other resources?"

Brad demonstrated MyLifeSite's MoneyGage Net as one tool designed specifically to model these types of CCRC financial decisions.

Don't Forget About the Financial Health of the CCRC

Tax benefits won't matter much if the organization making decades-long promises to your client isn't financially sustainable.

Brad recommended reviewing the CCRC's:

• Disclosure statement
• Residency contract
• Audited financial statements
• Debt
• Occupancy
• Refundable entry-fee liabilities
• Long-term financial position

For nonprofit CCRCs, Form 990 can provide another source of financial information.

Refundable entry fees are particularly important to understand. They may appear as significant liabilities on the organization's balance sheet, so advisors need to look at the facility's finances in context.

Clients aren't merely choosing where they want to live.

They may be entering into a financial relationship that lasts for the remainder of their lives.

HSAs Can Help Clients Prepare Years in Advance

The webinar also highlighted another planning opportunity that begins long before a client moves into a CCRC: the Health Savings Account (HSA).

Larry encouraged clients who are eligible and financially able to consider allowing HSA assets to accumulate rather than automatically reimbursing every current medical expense.

Those funds can potentially become an important source of tax-free money for qualified healthcare expenses later in retirement.

For younger clients, that makes the HSA much more than a current-year medical spending account.

It can be a long-term retirement healthcare asset.

Questions Advisors Should Ask Before a Client Chooses a CCRC

When a client begins evaluating communities, consider asking:

What type of continuing-care contract is this—Type A, B or C?

How much of the entry fee is refundable, and under what conditions?

How will assisted-living and skilled-nursing costs change under the contract?

Does the CCRC provide an annual medical-expense allocation statement?

Could the entry fee create a significant medical deduction this year?

Should we evaluate a Roth conversion or capital-gains strategy before year-end?

What do the CCRC's audited financial statements tell us about its long-term financial health?

How does this decision affect the client's lifetime retirement cash flow—not just next year's expenses?

Those questions can turn what appears to be a housing conversation into a much more comprehensive retirement-planning discussion.

The Bigger Opportunity for Advisors

Perhaps the most important lesson from the webinar was simply timing.

The worst time for an advisor to learn that a client paid a large CCRC entry fee may be the following April when the tax return is being prepared.

By then, many year-end planning opportunities are gone.

The better approach is to become involved before the client signs the contract and pays the entry fee.

That gives the financial advisor, CPA and client time to evaluate the contract structure, potential medical deduction, Roth conversions, capital gains, liquidity needs, estate considerations and long-term affordability together.

For clients considering a CCRC, the question isn't simply:

"Can I afford to move there?"

A more valuable planning question may be:

"How do we structure this decision so it works with the rest of my retirement and tax plan?"

Fact-Checked Resources

IRS Publication 502 – Medical and Dental Expenses: Provides guidance on the 7.5% AGI threshold, qualified medical expenses, long-term care and advance payments for lifetime care.

IRS Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans: Provides guidance on HSAs, qualified medical expenses and related tax rules.

IRS Form 8889 and Instructions: Covers HSA contributions and distributions, including qualified HSA funding distributions from IRAs.

Compliance Note

This article is for educational purposes and is based on concepts discussed during the Financial Experts Network webinar. CCRC contracts, medical-expense deductions and related tax-planning strategies are highly fact-specific. Tax treatment depends on the resident's contract, facility allocation, AGI, other medical expenses and overall tax situation. Clients should consult qualified tax, legal and financial professionals before making decisions based on potential tax deductions.