For the past 15 years, we’ve worked with thousands of clients, helping them to create retirement plans that would safeguard their assets while still leaving room for growth, lessen their tax burden, and ease the transition of accounts to their beneficiaries. For the most part, many of the strategies that we’ve recommended have remained constant – we always prefer to take risk off the table and build plans that are guaranteed.
One of the most important factors to consider when creating a retirement plan is what the client’s wishes for the account are when they’re no longer living. For many, they wish to leave as much as possible to their heirs or beneficiaries, without burdening them with a large tax bill.
The perfect solution is always a bit different, depending on the client, but one of the best tools used for ensuring your hard-earned assets are passed on to beneficiaries, rather than eaten up by taxes, is something called a Stretch IRA. A Stretch IRA is an estate-planning strategy in which an IRA could be passed to your heirs, taking advantage of tax-deferred growth of the assets within it and allowing beneficiaries to withdraw assets over their lifetimes. Since the passing of the SECURE Act, however, those who inherit an IRA now have 10 years to withdraw the assets contained in the fund – limiting any potential growth and augmenting taxation.
To think that tax rates over the next 10-30 years will be lower than they are now is hard to imagine. Especially since just a few weeks ago, Congress wrote a check for over 2 trillion dollars in the form of the CARES Act to help stabilize the economy. This piled on top of record-high deficits and national debt. Taxes will undoubtedly need to rise in the future to offset these figures. This means that any IRA’s you currently hold will be taxed at higher and higher rates as you age.
With the Stretch IRA now eliminated, the easiest and strongest alternative for these accounts is life insurance. With a cash-value life insurance plan, you will be able to accumulate wealth, create tax-free withdrawals for yourself in the future, leave a tax-free death benefit for your heirs, all while also securing long-term care benefits if the need should arise while you’re still living. Once set up, the plan can be funded annually without strict IRS limitations. If the intent is to leave behind assets to your heirs, using annual distributions from your IRA’s and other taxable accounts will result in tax savings for everyone, especially given the new economic environment we are facing.