IRA Solutions

IRA Solutions: Smart Tax Planning to Fund the Future

Have you spent the last 30 years maxing out your retirement plan? Join the club. It felt great at the time, didn’t it? You reduced your taxable income each year and watched those funds grow without having to pay tax on your interest, dividends, or capital gains. Well, now the party is ending. You’re approaching 70½ and Uncle Sam wants his share. All of that account growth means more taxable income for you to pay and the U.S. government to collect. 

But we have a solution.

We want to show you how to untangle this mess and leverage your IRA into a multi-million-dollar dynasty for your beneficiaries. Here’s an example of how this can be done:

Let’s say your IRA accounts total $3 million. If you carefully allocate those accounts into income-producing investments, they can generate $120,000 (4%) per year. IRA distributions are taxed as ordinary income, so let’s call it $80,000 after taxes are withheld. If you then buy a life insurance policy on your 63-year-old wife using that $80,000 as the annual premium, you can buy a guaranteed $6 million life insurance policy that will be passed on – tax-free – to your kids. Alternatively, you could purchase a survivorship policy, commonly referred to as a “last to die policy,” which would pay just under $7 million upon the second death. The choice as to which approach to take will depend on the couple’s health and financial circumstances.

The best part of this strategy is that the $3 million is still in your IRA because we only used dividends and interest to fund the life insurance policy. If you were to do the math on how much you’d need to save in order to pass that same $9 million of wealth along without life insurance, it could be more than $20 million once you factor in the income and estate taxes that would be due.

By using IRA distributions to fund your life insurance policy, you will also likely satisfy the required minimum distribution rule, which requires you to start withdrawing from IRA accounts after you turn 70½.

Planning at Any Stage

If you’re not in the distribution phase yet and are still accumulating assets, we have ideas for you, too. Rather than plugging $15,000-$20,000 into an IRA or 401(k) each year, consider life insurance instead. Our 401-Kaye plan is a solution that can help you solidify your parents’ legacy by purchasing a life insurance policy on one or both of them. This will ensure their legacy stays strong and passes on seamlessly from one generation to the next. The 401-Kaye plan will also help you avoid the tax headache associated with future IRA distributions, while receiving all of the tax and estate planning benefits associated with life insurance.  

We have decades of experience advising individuals, families, and businesses on how to maximize their legacies using life insurance. If you’ve been saving through IRA accounts for years — or even if you’re still contributing — call us today at 800-DIE-RICH to learn a new way of thinking that could pad your retirement and generate a larger inheritance for your heirs.