Maximize Your IRA, 401(k), and Annuities

Have you ever thought about how little your IRA or 401(k) may be worth to your family one day? What am I talking about, right? Consider this: Upon your death, your IRA may be subject to both ordinary income taxes and estate taxes. Let’s say income taxes cut out 30% and estate taxes cut out another 40% … you do the math! We can show you a better way to maximize the value of that IRA, 401(k), or annuity.

The first step is to set up an irrevocable life insurance trust. Then, we start withdrawing income from the IRA or 401(k). So let’s say you have $1 million in an IRA, which generates 5% per year. You withdraw the $50,000 and withhold whatever taxes you expect will be due — perhaps $20,000. You then take the $30,000 remaining and have the trust purchase a life insurance policy with it. That $30,000 as an annual premium will buy a 70-year-old couple approximately $2 million of life insurance. And the best part is, the death benefit is income- and estate-tax free. So instead of $1 million turning into $300,000, you will pass along $2 million in life insurance proceeds plus the original $1 million of principal. That’s 10 times the inheritance!

A similar strategy exists for your annuity contracts. Many of us own annuities that we bought in the past, but we don’t necessarily need the income from them to live. Similar to the IRA and 401(k), annuity distributions are taxed as income and may also be subject to estate taxes. Plus, they don’t qualify for a step up in basis like individual stocks do. So what should you do with your annuity? Start taking out the income now. Pay the income tax and use the proceeds to buy an insurance policy. Using this strategy should help you create considerably more wealth for your heirs than if you do nothing and die with the annuity in your name.

Now that you understand the basics of how life insurance can help you leverage your assets into a larger tax-free inheritance for your heirs, consider the many ways in which this planning may apply to you. Besides your IRA, 401(k), and annuity, life insurance can optimize your pension income, Social Security payments, or even your municipal bond interest.

At Howard Kaye, we can show you the various ways that life insurance can be incorporated into your estate plan and help you leave a much greater legacy. Many of these strategies we pioneered ourselves and have been implementing for decades. Contact us today at 800-DIE-RICH and let us do the same for you.