wealth transfer strategies using rmds copyright © 2003-2013 c.o.r.e. group usa, inc. and c.o.r.e....
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Wealth Transfer Wealth Transfer Strategies Using RMDsStrategies Using RMDs
Copyright © 2003-2013 C.O.R.E. GROUP USA, INC. and C.O.R.E. Marketing, Inc. All rights reserved.
CORE GroupCORE GroupBroker Use Only – Not for use with public.Broker Use Only – Not for use with public.
Getting the BEST Use of an IRAGetting the BEST Use of an IRA
Are you interested in getting the best use of your IRAs?
$ Income
$ Children
$ Charities
$ Other
If you could do more….would you?
Why Target IRAs?
• Baby Boomers over the next 20 years will transfer more wealth than this country has ever seen. Much of it, $7 trillion to be exact, is accumulating in tax-deferred accounts like IRAs and 401(k)s.
• The key word here is tax-deferred, not tax free. No matter what you do, either you or your heirs will have to pay taxes on that money some day.
IRA Legacy PlanningIRA Legacy Planning
While these qualified assets are accumulating While these qualified assets are accumulating tax-deferred during your client’s lifetime, the tax tax-deferred during your client’s lifetime, the tax burden they are leaving their children is growing burden they are leaving their children is growing as well. as well.
Today we will introduce a simple wealth transfer Today we will introduce a simple wealth transfer solutions specifically designed to alleviate the solutions specifically designed to alleviate the tax burden on qualified accounts like IRAs and tax burden on qualified accounts like IRAs and 401(k)s. 401(k)s.
Offsetting Income TaxesOffsetting Income Taxes
Summary: •Your client has a significant amount of money in an IRA. •He is taking RMDs, but he doesn't need them for income. •He would like to leave the IRA to his beneficiaries, but he's concerned about leaving them a large tax burden as well.
In this concept, you take a portion of the unwanted RMDs and use them to fund a life insurance policy that will help offset the income taxes his beneficiaries will owe when the IRA is transferred to them.
AssumptionsAssumptions
• Married couple
• Both age 70
• $1 million IRA in the husband’s name
• 6% growth rate on the IRA
• 28% tax rate for the couple and their heirs
• No withdrawals other than RMDs
Step #1Step #1
Determine the projected value of the IRA at a point in the future when your client expects to transfer the IRA value to his heirs.
In this case, let’s say the client’s life expectancy is 80. You will illustrate the IRA value at age 80 (taking into account the 6% growth rate and the RMDs) to be $1,154,424.
Step #2Step #2
Estimate the income tax the beneficiary will owe if the IRA is inherited as a lump sum when your client turns 80.
If your beneficiary inherits the IRA as a lump sum, income taxes will be assessed on the entire amount.
Estimated Estimated Value (age Value (age
80)80)
Estimated Estimated Tax RateTax Rate
Taxes owed Taxes owed by by
beneficiarybeneficiary
$1,154,424$1,154,424 XX 28%28% == $323,239$323,239
Step #3Step #3
Purchase life insurancePurchase life insurance
Use a portion of the client’s unwanted RMDs to fund a life insurance policy with a face amount equal to the beneficiary’s expected tax liability—in this case $323,239.
Annual life-pay premium to guarantee $325,000 in a survivorship policy to age 120 is $6,741.
IRRIRR
ResultsResults
•Beneficiary receives $1,154,424 inheritance from the IRA.
•Beneficiary receives $323,239 life insurance death benefit, which is used to pay the tax liability owed on the IRA.
•The asset transfers, essentially, with no tax liability for the beneficiary.
•And the life insurance didn’t cost your client anything “out-of-pocket” because he simply leveraged the RMDS he was taking anyway. Rather than putting them in the bank, he simply committed a portion of them to paying his life insurance premiums.
Other Strategies – Use all of RMD
Other Strategies – Use all of RMD
Client does not need any of his RMD for lifestyle
Take entire net of tax RMD and purchase as much life insurance as it will buy to increase tax-advantaged wealth left to heirs.
Use a second-to-die policy to increase leverage.
Ideally use an ILIT to keep death benefit out of the estate.
Hopefully beneficiary will stretch the IRA to further enhance tax advantages.
Other Strategies - Charitable PlanningOther Strategies -
Charitable Planning
Use RMDs to buy life insurance – ideally death benefit should exceed or equal projected value of IRA at death
Name a charity as beneficiary of the IRA.
At death, heirs receive the income-tax free death benefit that replaces the IRA, and charity receives IRA.
Client’s estate is reduced by charitable gift of IRA.
Other Strategies – Multi-Generational Planning
Other Strategies – Multi-Generational Planning
Client uses RMDs to purchase life insurance.
Client names grandchildren as beneficiaries of IRA so that longest stretch period is achieved.
Client names children as beneficiaries of life insurance.
At death, children receive death benefit and grandchildren receive IRA.
Other Strategies - Roth Planning
IRAIRA
Owner withdraws Owner withdraws funds annually funds annually from IRA to from IRA to purchase a life purchase a life insurance policy insurance policy on himself owned on himself owned by spouse. by spouse.
Net IRANet IRA
At owner’s death, At owner’s death, insurance proceeds insurance proceeds are used to pay are used to pay income taxes on Roth income taxes on Roth conversion.conversion.
At death spouse At death spouse converts to ROTHconverts to ROTH
At spouse’s death, At spouse’s death, heirs inherit Roth heirs inherit Roth and receive lifetime and receive lifetime tax-free tax-free distributions.distributions.
What Next?
•Identify clients with IRAsIdentify clients with IRAs
•Identify clients who will not spend down their IRAIdentify clients who will not spend down their IRA
•Identify clients with desire to “do more”Identify clients with desire to “do more”
•Call us with their information to discuss planning Call us with their information to discuss planning strategiesstrategies
By the Way
•Works for un needed social security incomeWorks for un needed social security income
•Same wealth maximization to familySame wealth maximization to family
•Fund a private social security program for familyFund a private social security program for family
•Multi generational financial security. Multi generational financial security.
C.O.R.E. GROUP USA, INC.Centered on Relationship Enhancement7373 N. Scottsdale RoadSuite A-287Scottsdale, AZ 85253480-991-4072 · 800-991-6695Fax: 480-991-8885
C.O.R.E. Group Case Design
C.O.R.E. Group Case Design