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A federal judge has approved the deal, which stipulates that Mr Hinckley will be released next year. Until now, the would-be assassin has been living under supervision outside a mental health facility in Williamsburg, Virginia.
Prosecutors have agreed to the 2022 release, under the condition that Mr Hinckley be monitored for the next nine months.
A lawyer for Mr Hinckley said his client clearly no longer poses a threat.
“There is no evidence of danger whatsoever,” attorney Barry Levine told the court.
Mr Hinckley, now 66, was 25 when he shot Mr Reagan outside a hotel in Washington, DC. He also wounded a Secret Service agent, a police officer, and White House press secretary James Brady, who remained paralysed for the rest of his life.