After a 2-year hiatus, RMD’s (Required Minimum Distributions) are back for the 2021 tax year; those who turned age 72 by 7/1/2021 will need to take their RMD by 4/1/2022. Many of these clients do not need or want the income, yet they are forced to take the money from their IRAs and pay the tax on the distribution. Additionally, when the client passes away and the entire remaining IRA balance is taxable to non-spouse heirs, creating an additional tax burden.
An option for clients who do not need the income from RMD’s is to use these dollars to fund a life insurance policy. This maneuver allocates the RMD dollars into a tax efficient vehicle that provides a tax-free death benefit that can be used to pay the taxes due on the inherited IRA. There are also many polices that grow cash value and have accelerated death benefit provisions that provide tax-free dollars to pay for Long-Term Care expenses.
There are flexible funding options for these types of policies so you do not need to wait until the client turns 72 to use this technique. Approach clients in their 60’s who will face this situation and we can structure a lower premium in the early years that steps up when the RMD’s are actually due. This way we get the coverage in place when the clients are younger and healthier.
Contact the Experts at Wholehan Marketing to discuss how we can help your clients ease the burden of taxes in their retirement plan.