An Overlooked Strategy for Your IRA 

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.

$64,000 Question 

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.

Life Insurance Retirement Planning

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? 

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Why Do So Many People Hate Life Insurance?

ST. CROIX INSIGHTS

Why Do So Many People Hate Life Insurance?

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

That was my initial reaction to life insurance. Maybe not “hate” but something more like denial in the need for it. Denial that one day my physical life will sunset. I remember my first experience talking about life insurance was with a State Farm Agent, Dave Abraham, at the ripe old age of 23 or 25 years old. At that young age, I was already married, had a kid, and a mortgage. I suspect your list would be no different than mine when you have a family. Dave did his job, he talked about life insurance, looking to protect my family, but I wasn’t ready to face the realities that I could meet my maker at that young age. Who the heck wants to confront that?

The Importance of Life Insurance

I believe that the typical response I receive when I approach this topic with clients is the same reaction I had at the time: denial followed closely by a lack of understanding and relevancy around how life insurance fits into their overall financial plan. That’s when I have to really go to work to help them understand and convey the importance so I don’t have to apologize to their families because they didn’t take the necessary steps. But it’s not always easy.

Life Insurance Hudson

Yet even as I write this blog today, the reality is I don’t think I’m going to die nor do I think my clients, friends or family members are going to die. I suspect the millions of readers reading this blog (I wish) have the same reaction – not me. I’m not going to die today or tomorrow…or ever. Yet just in the past week or two, I bet you know some who died, someone who was diagnosed with a major illness, or had a life-saving medical procedure. I’ve witnessed all three just this week. Sometimes it takes its toll!

“I’ve delivered a few death benefit checks in my financial services career so far. And, what’s scary as a Certified Financial Advisor is that in the years to come I’ll be delivering many more. Someday someone will be delivering mine to Mrs. Anderson.”

Insurance & Financial Planning

She’ll have tears of JOY in her case and will be ready to hire that pool boy that I’ve denied her all these years. Because I finally got it (I got over the mental hump), the importance of life insurance plays in my financial plan. My physical life will sunset, but I don’t want mine or Mrs. Anderson’s dreams to die prematurely.

How about you your families?

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