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IRA Tax Bomb

While most people, even savvy business owners, may think they know all they need to know about income tax planning tools, they don’t. It is our goal with this website to educate people on “all” of the available tools so informed decisions about which tools will work best can be made.

Estate & Tax Planning

IRS Rules On IRA Inheritance

We had lost decade from 1998 to 2008 where the S&P 500 generated a –1.40% rate of return  while incurring two huge stock market crashes (–46% (2000-2002) and –59% (2007-March 2009)).

More recently the stock market has had a very good “bull run” (average rate of return in excess of 13% from October 2009 to October 2018).

What does the future hold?  If anyone is being honest, they will tell they really have no idea.

Personal Risk Assessment Score—do you know your personal risk assessment score (a score on scale of 1-100 indicating your appetite for and capacity to take risk in the stock market)?

Are you working with an advisor who uses a personal risk score as a tool to help give you advice? For most, the answer is NO and NO!

Would you like your kids to pay the tax bill on their inheritance?

If not, we are here to help

Death Settlements

What is a safe money tool? It’s one that provides some amount of upside growth while providing 100% protection from stock market downturns. Sound interesting? Let’s look at two such tools.

Indexed Life Policies

How would you like a wealth-building tool with the following traits?

  • Tax-free growth

  • Tax-free withdrawals (no age 59.5 limit)

  • Money can never go backwards due to downturns in the stock market

  • Gains are locked in annually

What’s the catch? There is a cap on the growth each year (caps range from 10-14.5).* For example, if the S&P 500 index generates a return of 15% and if an Indexed Life Policy has a cap of 13%, the return on cash would be 13% not 15%.

The tax-free expected rate of return on cash in an Indexed Life Policy should be between 6.5% and 8.5%.**

Fixed Indexed Annuities (FIAs)

How would you like a wealth-building tool with the following traits?

  • Tax-deferred growth

  • Money can never go backwards due to downturns in the stock market

  • Gains are locked in annually

What’s the catch? There is a cap on the growth each year (caps right now are in the 7% range).* The tax-deferred rate of return in an FIA should be between 4-6% over time.**

FIAs can also come with a guaranteed income-for-life rider that will be a good fit for those who are worried about running out of money in retirement. To learn about guaranteed income for life products, click here.

What’s the difference between Indexed Life Policies and FIAs?

Indexed Life Policies are a unique type of cash value policy, and when designed properly it allows money to grow tax-free and can be withdrawn tax-free.  FIAs are annuities and simply have tax-deferred growth. Indexed Life Policies are for people typically under the age of 55 (because the costs for those over the age of 55 start to get price prohibitive). Due to the lower caps, FIAs are typically for people over the age of 50.

Getting Help

If you would like help determining which plan below will best fit your needs, contact our office to set up an appointment.

IRAs

These are simple tools that most people can fund but only up to a small funding amount each year.

Profit-Sharing Plans (PSPs)

These are plans employers can choose to put in place where the employer makes the contribution. There are three different kinds of PSPs employers will use depending on their goals.

401(k) Plans

These are employee-sponsored plans where employees can make voluntary payroll deductions in a tax-deferred manner. 

Defined Benefit Plans

These are not only funded by employers for their employees, but the employer is guaranteeing a certain retirement income for vested employees at retirement.

Roth IRAs and 401(k) Plans

There are after-tax versions of the deductible kind where the money is allowed to grow-tax-free and come out tax-free.

Indexed Life Policies

When designed properly it allows money to grow tax-free and can be withdrawn tax-free.

Empty Road

Schedule an Appointment

There are other tools not listed here that may be of help to affluent clients; those tools being a captive insurance company or some form of charitable structure. If you are a business owner who can take deductions of more than $500,000 a year, contact our office to discuss these other options.

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