A few weeks ago we published a post discussing whether it makes sense to withdraw funds from an individual retirement account (IRA) to cover the entry fee at a continuing care retirement community (CCRC), also called a life plan community. That article showed that taking money from an IRA to pay a large entry fee can sometimes be more expensive than people expect. Here, we expand on that analysis and highlight additional tax considerations that could change the outcome, including potential tax deductions related to CCRC fees.
Possible CCRC entry fee tax deductions
Under current federal tax rules, residents of certain life plan communities may be able to deduct a meaningful portion of their upfront entry fee in the year it is paid. In many CCRCs, residents prepay for a continuum of care—services that could include assisted living or nursing care if needed—and the IRS may treat part of the entry fee as a prepaid medical expense eligible for deduction.
>> Learn more about potential CCRC entry fee tax deductions.
To illustrate, imagine you withdraw $300,000 from an IRA to pay a $300,000 entry fee. If you qualify to deduct 30% of that entry fee as a medical expense, the deductible portion would be $90,000. That reduces the taxable portion of the IRA withdrawal to $210,000 instead of $300,000. If the withdrawal otherwise falls entirely within a 35% tax bracket, that 30% deduction translates to roughly $31,500 in tax savings on the withdrawal.
There are important rules to understand about this deduction:
- The deduction must be taken in the year the entry fee is paid; it cannot be spread over multiple years.
- You must itemize deductions rather than claim the standard deduction. A large entry fee deduction may make itemizing advantageous in the year you move in, even if you typically take the standard deduction.
- The deductible medical expenses are only allowable to the extent they exceed 7.5% of your Adjusted Gross Income (AGI) for the tax year. The actual deductible amount depends on your AGI and other medical expenses.
Potential deductions for ongoing monthly fees
If a portion of the entry fee is deductible as a prepaid medical expense, it is often the case that a portion of ongoing monthly service fees may also qualify for deduction going forward. For example, if your monthly fee is $4,500 and 30% of that fee is considered deductible medical expense, the annual deductible amount would be $16,200.
In the first year, you could potentially combine the entry fee deduction with the pro‑rated deduction for monthly fees paid during that year, reducing your taxable income further. Keep in mind the number of monthly fees paid in year one depends on your move‑in month, so the full annual deduction may not apply if you haven’t lived there for the entire year.
Unlike the one‑time entry fee deduction, deductible treatment of monthly fees may be available year after year so long as those fees continue to qualify under applicable tax rules and you continue to meet the threshold for deductible medical expenses.
Using CCRC fee deductions to support a Roth IRA conversion
The tax treatment of CCRC fees can also play a role even if you do not withdraw from an IRA to pay the entry fee. For example, if the sale of your home covers the entry fee, you may still be able to claim the deduction for that same year. That deduction could lower your taxable income or be used to offset taxes on a Roth IRA conversion. Reducing the tax cost of a conversion can improve long‑term tax efficiency for you and your heirs.
Because tax situations vary and the rules governing medical expense deductions and retirement accounts are complex, consult your personal tax advisor before taking action. A qualified advisor can confirm whether your specific CCRC fees qualify as deductible medical expenses and help you model the tax impact of withdrawals, conversions, and other planning moves.
Revised 12/4/2025
This blog post is not intended as tax or financial advice. Individual circumstances differ; please consult your personal tax advisor before making decisions.