While traditional 401k plans can lower your taxable income and offer tax-deferred growth on your investments they do have a disadvantage in that when you eventually take distributions they are taxable.
There is however an alternative strategy, whereby you utilize life insurance to provide a retirement savings vehicle with greater tax efficiency than a traditional 401k.
In this concept you utilize life insurance for your own retirement. You take the same dollars you were dedicating to your 401k or IRA and buy a life insurance policy on one or both of your parents instead or you could combine the two strategies together by dividing the money up between the two. While you obviously don’t wish for your parent’s demise, you both understand this is a win-win situation because it’s a guaranteed return.
Unlike traditional retirement vehicles, this plan allows you to:
-
Guarantee your inheritance: Buying life insurance on your parents means knowing exactly how much you’ll inherit. For example, $15,000 per year may buy you a $1 million tax-free death benefit on your 67-year-old father.
-
Eliminate market volatility: Most 401k plans are limited to stock and bond investments. You could spend 20 years amassing $1 million only to see it shrink down to $500,000 after you retire. Any number of unpredictable factors can rock the markets—along with your savings.
-
Avoid RMD issues: Traditional 401k and IRA accounts require that you start taking withdrawals in the year you turn 70 ½. This required minimum distribution often forces people to withdraw money they don’t need, which can push them into a higher tax bracket. Life insurance helps you avoid RMD issues completely.
-
Tax advantages: Unlike inherited IRA accounts, life insurance proceeds pass tax-free to the beneficiary. Funding life insurance can also remove assets from your estate, reducing or eliminating your estate tax exposure, if that’s a concern for you.
-
Be the beneficiary: When you own the policy, nobody can change the beneficiary but you! This guarantees an inheritance for you and your family.
Rather than depending on the ups and downs of the market, reward your hard work with a guaranteed return.
For a consulatation please contact Licensed Insurance Broker Richard Sinton at 702-949-0930
T