Strategy Overview
Tax-Free Income Strategies
When we think of TAX-FREE Income, we have a few popular options.
These can be a great tool for you to accumulate but keep in mind with recent changes to the ROTH IRA, these assets when passed to a non-spouse beneficiary must be withdrawn within 10 years. So, when this is a concern, we often pivot to a Life Insurance option.
LIFE INSURANCE
When you are planning for TAX-FREE Income from NON-IRA qualified plans, you can look at the use of a LIFE insurance product like a Fixed Index Universal Life policy. This is a combination of an Index Growth Product with the Tax-Free benefits of a Life Insurance contract. Weather you desire to take Tax-Free income for yourself or pass these assets onto the next generation will be an important decision to make. The many options allow you to either take a policy on yourself or take one out on your children.
- ROTH IRA - A great tool for growing your assets tax-free in different types of environments like the market, annuities, and banks.
- MUNI BONDS - Although these are Tax-Free, often the rate of return is less and they do count against you with Provisional Tax (aka SS Tax)
- LIFE INSURANCE - The use of Life Insurance can be a powerful tool for growth of your assets that are not in the IRA system or assets that you want to pass onto your next generation on a tax-free basis.
These can be a great tool for you to accumulate but keep in mind with recent changes to the ROTH IRA, these assets when passed to a non-spouse beneficiary must be withdrawn within 10 years. So, when this is a concern, we often pivot to a Life Insurance option.
LIFE INSURANCE
When you are planning for TAX-FREE Income from NON-IRA qualified plans, you can look at the use of a LIFE insurance product like a Fixed Index Universal Life policy. This is a combination of an Index Growth Product with the Tax-Free benefits of a Life Insurance contract. Weather you desire to take Tax-Free income for yourself or pass these assets onto the next generation will be an important decision to make. The many options allow you to either take a policy on yourself or take one out on your children.
A Fixed Index Life Insurance provides:
- Safe Growth - linked indirectly to the market with no fees nor market loss potential.
- Tax-Free Growth - The challenge of passing a ROTH IRA, are that the rules state the ROTH must be depleted within 10 years which can make the desire to continue growing funds tax-free difficult. But with a Life policy on the children, not only is the cost of insurance less expensive but the policy will transfer from you to them upon your death, or to a trust of your choice.
- Death Benefit - The death benefit is always a core part of a life policy which means the cash within the policy will be less then the death benefit and be tax-free to the beneficiary.
- Long-Term Care Benefits - The death benefit can help the insured pay for Long-Term Care, by accessing what is called an Accelerated death benefit. Borrowing against the death benefit tax-Free.
Having a policy on your your children who are over 18, will offer them the ability to receive Tax-Free assets and even provide a lifetime of tax-free income too. But if your under, 65, this may work on you too. There are different strategies for each. Such as Death Benefit for the kids if you pass, vs Lifetime-Income for your children with Long-Term Care benefits. Either way, you maintain control of your funds until your passing, unlike a ROTH IRA.
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COMPARISON OF LIFE POLICY ON YOURSELF (if under 65)
When you take a policy out on yourself, it is based upon your age and health. However, you may be able to add on a LONG-TERM care rider that allows you to use the Death Benefit while your alive to help cover these costs. With after-tax premium contributions, in the life policy over 5 or more years, you goal is to grow, these into Tax-Free Income payments by access the portion of growth through a policy LOAN which eventually gets paid off by the death benefit not by you. There are many parts to understand and a policy illustration should be reviewed prior to making a decision. The two main types of polcies are:
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COMPARISON OF LIFE POLICY ON YOUR CHILDREN (if over 18)
We explore the option of having a life policy owned by you and the insured being the child. You maintain access to your funds, while growing the account with a very low cost of insurance. With after-tax premium contributions, in the life policy over 5 or more years, you goal is to grow, these into Tax-Free Income payments by access the portion of growth through a policy LOAN which eventually gets paid off by the death benefit not by you. There are many parts to understand and a policy illustration should be reviewed prior to making a decision. You can use those funds tax-free or leave them to your child when you pass and either the child or a Trust can be the beneficiary. They would then have an account that would not have to be eliminated within 10 years like a ROTH IRA. They would have a tax-free asset that is liquid and have the option for tax-free income throughout their lifetime. They would have access to the living benefits to help cover for Long-Term Care, and perhaps even have money to to leave to the next generation beyond them. |
These illustrations are for educational purposes only. Please refer to all insurance company illustrations for details you will need to make an informed decision. We provide these examples for you to better understand how the concept works.
