ST. CROIX INSIGHTS
An Overlooked Strategy for Your IRA
BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC
Perhaps the most overlooked strategy for your IRA is to insure your retirement account. Yes, I said it, life insurance. It’s an overlooked financial tool that helps solve a host of financial concerns and helps protect everything you’ve worked so hard for over the years. Life insurance proceeds are income tax free when structured correctly! Life insurance can help pay estate and income taxes on your overall estate, including your retirement accounts.
Here’s the $64,000 question: When you believe life insurance is a waste of money, at the end of the day, which would you rather pay – taxes or life insurance premiums?
Chances are we’ve all made a deal with Uncle Sam, and chances are, he owns half of your retirement account value. Let me prove it to you.
Who designed 401ks, 403(b)s, SEPs, Simple IRA Accounts, IRAs? Congress. And who enforces those provisions? The IRS. They set the rules and upon you contributing to these types of retirement plans, you’ve made a deal with the government. Still not convinced, give me a call and I’d be happy to discuss this in detail.
A Point of Clarity
Just to be clear, I’m not saying you shouldn’t utilize these types of retirement planning strategies. However, when you do, you need to be clear about the rules and how to make the most of these strategies. So you’ve spent years saving for your retirement, which is outstanding, but at some point, two things are going to happen:
- You live a long time, distributing funds from your retirement accounts prior to your death (best option) or
- You die prematurely with funds still inside your retirement accounts.
Ok, so what? Well, these are pre-taxed accounts that in retirement will be taxed as you distribute funds (70 ½ being the magical age at which you have to start taking required mandatory distributions) and Uncle Sam’s going to tax those distributions at ordinary income tax rates. But, let’s say you die. At that point IRAs, 401ks 403bs, SEPs, and Simple IRA accounts will be taxed as ordinary income for your beneficiaries, plus they may be subject to an estate tax on top of this.
When you factor state and federal tax rates plus potential estate taxes we may be subject to, it’s easy to see how our beneficiaries may not receive that which we have set aside for them.
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Ask yourself- can my portfolio support my lifestyle in my retirement?