Chris Wholehan

As we come to the end of Life Insurance Awareness Month, and at the same time look ahead toward the upcoming Tax Season, advisors can use the fourth quarter of the year to help their clients position assets to have a meaning impact on their financial plan.

The greatest wealth transfer in history will continue to unfold over the next 25 years, as the Baby Boomer generation passes assets to their children and grandchildren.  At the same time, tax laws regarding inherited IRA’s and retirement plans changed when the SECURE Act went into effect at the beginning of 2020. Before the SECURE Act, adult children and non-spouse heirs could inherit an IRA or other retirement plan assets and minimize their tax exposure by stretching withdrawals from these accounts over their lifetime. Now, most non-spouse heirs who have inherited these retirement plan assets after January 1, 2020 must liquidate the account by the end of the tenth year after the passing of the account owner.  Ironically, this change can actually result in more tax dollars being due sooner and less net after-tax inheritance for these heirs.

Addressing this scenario earlier in retirement, and using life insurance to offset this new “transfer tax situation” can help Boomers pass assets in a manner closer to their intended plan.  Required Minimum Distributions (RMD’s) are still imposed upon IRA’s and Qualified accounts, and often they are not wanted or needed by retirees.  Healthy Boomers can use these RMD’s to fund a life insurance policy that will provide a tax-free inheritance to their heirs.  So “draining” the taxable IRA / Qualified accounts during retirement to fund a permanent life insurance policy effectively transfers taxable assets to the next generation tax free.

As you visit with your clients over the coming months, discuss their intentions for their Qualified Assets and determine if a technique such as this can help them accomplish their goals more efficiently.  Then contact the experts at Wholehan Marketing and let us help you design the policy that fits best for each client!