IRAs were created as a tax-advantaged way to encourage personal retirement savings, allowing tax-deductible contributions and tax deferred growth. However, IRAs were not made as a vehicle to pass wealth to future generations. Beginning at age 72 ½, IRA’s have Required Minimum Distributions (RMD’s), which require you to take distributions from them and pay income tax on the distributions whether you need the money or not. Additionally, IRA’s left to non-spouse beneficiaries are taxable as ordinary income to the beneficiaries upon distribution.

IRA Maximization is a wealth transfer strategy that uses RMD’s to fund a life insurance policy on the life of the IRA owner. The tax-free death benefit from the life insurance policy, is paid to the beneficiaries at the same time they are inheriting the taxable IRA and can be used to pay the taxes due on that inheritance. This technique helps manage the tax liability and maximize the inheritance that passes to beneficiaries.

Sometimes, it may be difficult to issue a new life insurance policy on someone over the age of 70. To solve this issue, certain permanent life insurance policies can be taken out on the life of the IRA owner when they are younger (in their 50’s or 60’s), and generally healthier, with a lower initial premium, then steps-up at a later age when the RMD’s kick in. This way, the client can obtain the coverage they need at a lower, more cost-effective premium and allow the RMD’s to cover the increase later. This “step up” concept works well for those who need both death benefit protection and wish to maximize their IRA legacy.

Contact the experts at Wholehan Marketing

Let us help structure the right approach for your clients’ needs!

Jody Horetski

Life Insurance Consultant

1.800.535.6080  x444