By John A. Wenstrup
Many people over the age of 59 have accumulated large sums in qualified retirement accounts or deferred annuities that may not be needed to fund their retirement. Their intent may well be to defer taxes and pass the account to the future generation.
However, because these retirement assets are includable in the taxable estate and have not yet been taxed as income, they risk losing as much as 50% of the value of their value to estate taxes and possibly 39.5% to income taxes upon the last to die.
A way to help you pass the asset and avoid double taxation.
In order to determine if the IRA Rescue Plan might work for you, we begin with an analysis of your current IRA and retirement assets. Depending on the results of that analysis, it may be prudent to take distributions now and pay the income tax and possible penalties. This income might then be gifted to your children in an irrevocable trust, which in turn, buys life insurance for their benefit.
Properly structured, your heirs receive the death proceeds free of both estate and income tax, as shown in the following chart.
|
|
Qualified Retirement
Account
taxed @ death |
IRA Rescue
(annuitization w/life
insurance held in trust)
|
| Qualified Assets @ death |
$1,000,000
|
0
|
| Income Tax (max 39.5%) |
-$395,000
|
0
|
| Estate Tax (max 50%) |
-$302,500
|
0
|
| To Heirs |
$302,500
|
$2,000,000*
|
|
|
If the concept makes sense to you, we'd like to extend an invitation to review the details of your personal situation and consider the advisability of rescuing your qualified dollars and keeping your money in the family.
* In 2001 Congress enacted EGTRAA that affects the estate tax. The estate tax is currently set to increase in exemption and ultimately disappear for the year 2010. EGTRAA has a sunset provision that in 2011 reverts to 2000 levels unless legislated otherwise prior to that time.
--
The Wealth Alliance does not provide tax or legal advice. Tax laws are subject to change.
513-248-9242
John A. Wenstrup is a Chartered Financial Consultant and president of The Wenstrup Company. John specializes in retirement, wealth transfer & business succession planning.
This page is intended to demonstrate a concept and is for illustrative purposes only. This is not a contract or an offer of a contract from an insurance company. This page is not intended as a projection or prediction of performance. The assumptions are subject to change and actual results will vary. |
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