{"id":20068,"date":"2020-10-28T08:44:41","date_gmt":"2020-10-28T12:44:41","guid":{"rendered":"http:\/\/insurancenewsnet.com\/?post_type=innarticle&p=6181951"},"modified":"2020-10-28T08:44:41","modified_gmt":"2020-10-28T12:44:41","slug":"3-strategies-that-dry-your-stretch-ira-tears","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2020\/10\/28\/3-strategies-that-dry-your-stretch-ira-tears\/","title":{"rendered":"3 Strategies That Dry Your Stretch IRA Tears"},"content":{"rendered":"

<\/p>\n

So, you lost the stretch IRA but here are three strategies that help bridge the gap.<\/figcaption><\/figure>\n
\n
\n<\/p>\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n<\/span>
\n
\n
\n
\n<\/span>
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n<\/span>
\n
\n<\/span>
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n<\/span>
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n<\/span>
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n<\/span>
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n<\/span>
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n<\/span>
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n<\/span>
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n<\/span> <\/p>\n
\n

So the SECURE Act killed the stretch IRA but instead of mourning, advisors can help clients make up the loss.<\/p>\n

In fact, there are at least three opportunities, which Tom Duncan, vice president of the Advanced Consulting Group at Nationwide Financial, told a webinar audience about during the National Association of Fixed Annuities virtual Annuity Distribution Summit on Monday.<\/p>\n

Duncan said that even though the stretch IRA was a \u201cgreat efficiency tool for family wealth transfer,\u201d advisors can help cover that loss for families and create a sales opportunity to fill the gap left after the 10-year mandatory IRA cash-out for beneficiaries.<\/p>\n

<\/p>\n

The Life Insurance Strategy<\/strong><\/h2>\n

\u201cOur first one, wealth replacement with life insurance, is all about closing the gap,\u201d Duncan said. \u201cWhen you run an illustration, you just do some comparison of the wealth-building power of the stretch versus the wealth building power of the 10-year rule.\u201d<\/p>\n

Even if the beneficiary cashed in the IRA, took the after-tax amount and grew wealth in a tax-deferred way, there would still be a wealth gap, he said.<\/p>\n

\n
Advertisement<\/div>\n
<\/a><\/div>\n<\/div>\n

\u201cWhat can we do from an inheritance perspective to close that inheritance wealth gap, the stretch inheritance versus the 10-year-old inheritance?,\u201d Duncan asked. \u201cWell, this may be a place to consider purchasing some life insurance to cover the stretch, which may be a way to better characterize that.\u201d<\/p>\n

Maybe it’s as simple as mom and dad buying some life insurance on themselves, Duncan said. At their death, the children would get what\u2019s left of the IRA for the 10 years and the benefit from life insurance to close the gap.<\/p>\n

That can be really attractive for families who happen to be in a scenario where the parents are in a lower tax bracket than the children. In that case, as counterintuitive as it sounds, that may be a place where it makes sense for parents to start taking distributions out of their IRA sooner than they were expecting.<\/p>\n

\u201cIf you’re trying to make this IRA inheritance as efficient and effective as possible,\u201d Duncan said, \u201cmaybe you have to think about it from a from a perspective of what can we do to lower the total effective tax rate on the inheritance of this IRA.\u201d<\/p>\n

The parents can start taking distributions out of their IRA in their 60s, and pay taxes at a lower rate than the children would, and buy life insurance with the after-tax dollars while they are still insurable.<\/p>\n

<\/p>\n

Another twist on that strategy is the parents can buy the life insurance but include long-term care protection.<\/p>\n

The trick is for parents to take the distribution at a low enough rate to keep them in the same tax bracket.<\/p>\n

\u201cThis life insurance discussion is one that’s going to prove fruitful from an efficiency perspective,\u201d Duncan said.<\/p>\n

The Slow Roth Strategy<\/strong><\/h2>\n

This is a Roth strategy for a family who might not think they can benefit from a Roth. Maybe they can\u2019t \u2013all at once, Duncan said.<\/p>\n

\u201cI would suggest, though, that you think first about the annual Roth conversion strategy over time,\u201d Duncan said. \u201cThis is one where you do convert Roth conversion, but only in amounts that keep you within the same tax bracket. Essentially, you fill up your current tax bracket.\u201d<\/p>\n

So, even if they taking taxable money out, in a sense, they are not getting penalized by having to move up a bracket.<\/p>\n

\u201cIf you do enough of these conversions over the years, you build up a Roth IRA bucket that then gets left to your kids,\u201d Duncan said. \u201cIt operates under the same 10-year rules, but it’s a Roth IRA, which has the possibility of distributions being income tax-free.\u201d<\/p>\n

<\/p>\n

What makes Roth distributions attractive is that contributions come out first, then the converted amounts and finally gain.<\/p>\n

\u201cThat is efficient tax planning for this family,\u201d Duncan said, \u201cand has the possibility of putting more wealth in the hands of the next generation than simply leaving it alone and letting those beneficiaries inherit a traditional IRA and operate it into the 10-year rule.\u201d<\/p>\n

The Charity Strategy<\/strong><\/h2>\n

\u201cThis is really where there are some real tax efficiency for IRA owners to consider,\u201d Duncan said.<\/p>\n

\u201cI mean real tax efficiency where we can avoid either taxation and or big lump sum taxation on our IRAs.\u201d<\/p>\n

<\/p>\n

One is the qualified charitable distribution planning tactic, which has been around a while but overshadowed by the stretch IRA, which was the preferred wealth transfer vehicle.<\/p>\n

\u201cLooking at it from a family perspective, what QCDs allow an IRA owner to do is make a distribution directly from their IRA,\u201d Duncan said.<\/p>\n

This strategy can also satisfy a required minimum distribution also, up to $100,000 a year.<\/p>\n

But it has to go directly from the IRA custodian to the charity. One downside is it removes the tax-deduction benefit. It also has to go to a public charity, such as the Red Cross or alma mater, and not to a private foundation.<\/p>\n

<\/p>\n

\u201cBut this is a way to be really income tax-efficient, satisfy your RMD and don’t pay tax on it,\u201d Duncan said. \u201cThat’s the tagline to think about.\u201d<\/p>\n

Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents\u2019 association. Steve can be reached at smorelli@innfeedback.com.<\/em><\/span><\/p>\n

\u00a9 Entire contents copyright 2020 by InsuranceNewsNet. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.<\/strong><\/span><\/p>\n

\n<\/div>\n

\n<\/div>\n


\n\n<\/div>\n

Read the original article at insurancenewsnet.com <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

So, you lost the stretch IRA but here are three strategies that help bridge the gap. So the SECURE Act killed the stretch IRA but instead of mourning, advisors can help clients make up...<\/p>\n","protected":false},"author":578,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/20068"}],"collection":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/users\/578"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/comments?post=20068"}],"version-history":[{"count":0,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/20068\/revisions"}],"wp:attachment":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/media?parent=20068"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/categories?post=20068"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/tags?post=20068"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}