The IRA Roll-Under
Simple
Planning, Simple Steps... A Guaranteed Result
Perhaps
the most highly taxed asset that our clients own is their IRA money.
Qualified money has never been taxed and our good friend Uncle Sam
has been waiting patiently for many years to get his pound of flesh.
In fact, in many cases that we have seen, up to 70% of your client's
IRA is lost to taxes when trying to pass the funds on to heirs. How
can this be? Well the IRA is subject to income tax which will take
up to 40%, but many times an IRA is also subject to estate taxes,
in fact for many of our clients the IRA is the largest asset in their
estate, and as part of their estate it is also subject to estate
taxes.
A
simple solution exists to help solve this tax dilemma. We call
our program
the IRA Rollunder. Simply by planning ahead and taking steps that
are simple and guaranteed, we can maximize the transfer of wealth
to the next generation. The IRA ROLL-UNDER strategy is used to help
clients "roll-under" the taxation and maximize the inheritance
to the next generation.
What
do most advisors tell their clients when it is time to begin taking
distributions from your IRA? "Take the minimum to avoid paying
unnecessary income taxes," right? Well our concepts says the
opposite... take out the money now, pay the tax over time, and use
the net income stream to replace the IRA asset, which will be highly
taxable in the estate, with an asset that is tax advantaged in our
estate... a life insurance policy.
The key
to the roll-under is the guarantees of all aspects of the plan. The
client can take distributions from the IRA, but the advisor wants
to make sure that the income stream is guaranteed. Our producers
accomplish this by using a SPIA... a single premium immediate annuity
that guarantees the payments for as long as the client lives.
As an
example, a 70 year old with $1,000,000 in their IRA would lose about
50% if he tried to pass that on to his heirs without planning. If
we wanted to Rollunder the tax and provide a $1,000,000 legacy to
the heirs, we could do that. To accomplish this result we need a
net income stream of approximately $57,250 This number is derived
from the premium needed to buy the life insurance. The annual income
of $57,250 can be guaranteed by purchasing a SPIA, within the IRA,
for approximately $470,000. This is a guaranteed payout for as long
as the clients is alive.
After
the client pays income taxes on the distribution @ 40%, the client
is left with approximately $35,000 net after tax. The advisor then
helps the client purchase the life insurance inside an ILIT, which
is exempt from estate taxes, and purchases a life plan that GUARANTEES
THE DEATH BENEFIT TO AGE 115! That's right... the $35,000 guarantees
a $1,000,000 payout to heirs income and estate tax-free.
But doing
so, the client has avoided estate taxes (which can be significant),
and has spread out the income tax over time... but what the advisor
has really done is roll-under the tax to maximize the inheritance
to the next generation.
Simple
planning, simple steps, an awesome result...
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