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Maximize Your 401K, Ira, and Annuities
Home / Maximize Your 401K, Ira, and Annuities

Have you ever thought about how little your IRA or 401(k) may be worth to your family after you have passed on? Consider this: Upon your death, your IRA and 401K may be subject to both ordinary income taxes and estate taxes. Let’s say income taxes cut out 30% and estate taxes cut out another 40% … Which could cut in in half before its distributed to your heirs. I can show you a another way. 

The first step is to set up an irrevocable life insurance trust. Then, we start withdrawing income from the IRA or 401(k). So let’s say you have $1 million in an IRA, which generates 5% per year. You withdraw the $50,000 and withhold whatever taxes you expect will be due — perhaps $20,000. You then take the $30,000 remaining and have the trust purchase a life insurance policy with it. That $30,000 as an annual premium will buy a 70-year-old couple approximately $2 million of life insurance.  In this case the death benefit is income- and estate-tax free. So instead of $1 million turning into $300,000 or $400,000, you will pass along $2 million in life insurance proceeds plus the whatever remains when the taxes are taken from the 401K. That’s 8 times the inheritance more than you would have got if you just left the 401K alone.

A similar strategy exists for your annuity contracts. Many of us own annuities that we bought in the past and can afford to live without the income they produce. Similar to the IRA and 401(k), annuity distributions are taxed as income and may also be subject to estate taxes. Plus, they don’t qualify for a step up in basis like individual stocks do. Therefore one strategy could be to start taking out the income now. Pay the income tax and use the proceeds to buy an insurance policy. Using this strategy should help you create considerably more wealth for your heirs than if you do nothing and die with the annuity in your name.

Now that you understand the basics of how life insurance can help you leverage your assets into a larger tax-free inheritance for your heirs, consider the many ways in which this planning may apply to you. Besides using life insurance to maximize your IRA, 401k, or annuities life insurance can optimize:

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