In Blog #10, I shared an Annuity Rescue Plan with you using Wealthy and Wise®.
Let’s look at an IRA Rescue Plan.
Defined contribution retirement plans like IRAs are tax efficient due to the deduction for contributions. They are also tax efficient due to their tax free growth.
They are not so tax efficient during retirement years due to taxable required minimum distributions (RMDs).
They are also not so hot when you die due to the income tax on the proceeds. (Although an IRA can pass income tax free to heirs using the “stretch” option, it is then fully taxable to the heirs as they make their RMDs.)
IRA Rescue Case Study
Alan and Marion Oliver are both age 60 and in a 35% income tax bracket. They don’t anticipate needing the RMDs from their IRA and wish they were not required.
Current Plan |
Proposed Plan |
Transition from IRA to Survivor IUL:
- Liquidate the IRA over five years to produce level after tax cash flow of $73,335. (Wealthy and Wise calculates this via the last prompt in the lower left corner of the Defined Contribution sub-tab located on the Retirement Assets tab.)
- Use the level cash flow to fund the premiums on the life insurance policy.
- Compare the life insurance with keeping the IRA.
Here are the results:
Alan and Marion’s heirs inherit 58% more long-range wealth with the IRA Rescue Plan, and that wealth consists of income tax free life insurance proceeds -- unlike an inherited IRA with its taxable distributions. This has been accomplished not by diminishing their net worth, but in Alan and Marion’s case, their long-range wealth is increased by 49%. I hope you appreciate how remarkable this is -- net worth up; wealth to heirs up.
The IRA doesn’t stand a chance of surviving this analysis!
IRA Rescue provides you with a platform to discuss other planning opportunities with what is likely to be a very impressed client. You have secured $1.5 million in additional net worth and certainly you have some ideas on how that could be best utilized.
Wealthy and Wise evaluations typically require extensive data input as you usually need to enter details of various liquid and illiquid assets. The IRA Rescue strategy in this Blog requires minimal data input. I was able to put the case together in about 10 minutes. If you are brand new to Wealthy and Wise, be sure to ask for the Case Data file (Workbook) below and following its logic should be straightforward. Click on the Workbook file name when you receive it, and it will launch in your Wealthy and Wise System.
They are all highly skilled at running InsMark software and can help you using your choice of life insurance company. You do not need to be licensed for InsMark software to use this service -- although if you aren’t, we would certainly welcome your participation. Mention my name when you talk to Brian, Chris, or Erik as they promise to take special care of my readers.
If you are licensed for Wealthy and Wise and would like to review the menu prompts we used for this analysis, you can download it here: Blog31.zip
If you are not licensed for Wealthy and Wise, contact Julie Nayeri at 1-888-InsMark (467-6275) or julien@insmark.com for licensing information. Institutional inquiries should go to David Grant, Senior V.P. at 1-925-543-0513 or dag@insmark.com.
Wealthy and Wise Testimonials
“Wealthy and Wise is the best -- and easiest to use -- wealth planning software I have ever seen.”
Simon Singer, CFP
InsMark Power Producer®, Encino, CA
“The reason I use InsMark products is because they are so good at explaining financial concepts to all three parties; 1) the producer trying to explain the idea; 2) the computer technician trying to illustrate it; 3) the customer trying to understand it.”
Rich Lindsay, CLU, AEP, ChFC
Pasadena, CA
“Major cases we are developing have all moved along successfully because of the sublime simplicity and communication capability of Wealthy and Wise. I guarantee that the proper use of this tool will dramatically raise the professional and personal self-image of any associate who dares to take the time to understand it.”
Phillip Barnhill, CLU
Minneapolis, MN