The SECURE Act cleverly taxes more qualified money than ever.

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Your senior clients are at risk, and to help them accomplish their goals in light of these changes, you need to be flexible and adapt your approach.  Consider most of our clients’ common concerns:
  • Running out of money in their lifetime
  • Losing their assets and income stream to market losses or extended care needs
  • The taxation of their income
Client’s need these concerns satisfied before they consider leaving the most amount of money as possible to their beneficiaries rather than the US Government. With unpredictable tax rates and other life circumstances, you must carefully strategize your advice to clients. 

Let’s look at a case study and go over the three options we ran the numbers on:

The subject is a 70-year old, non-smoking male with $500,000 in an IRA that he’s taking 5% out of each year. He’s taxed 30% per year due to his tax favorable joint return with his wife and will likely live until he’s 87 years old. Four different things could happen to this man:
  1. He lives a long life, perhaps even exceeding his life expectancy.
  1. He needs extended care, the likelihood of which is 70% based on his age. 
  1. He passes away before the expected mortality age of 87. 
  1. He winds up needing money later on in life. 
A few of these scenarios could happen simultaneously, too, of course. Now let’s see what works best given each situation: In the first instance, we take 10% out of his IRA each year until it gets exhausted within ten years and redistribute it into our Protected IRA Plus Program. In the second instance, we take the same 10% each year and reinvest it into a Roth IRA. And in option three, we wait until age 72, when the RMDs must begin as part of the new SECURE Act rules and reinvest the funds elsewhere. We compared the after-tax impact of what would happen if the client died, needed care, or cashed out for each of these options. If the client were to pass away, the Protected IRA Plus Program provides the best after-tax value in the first 15 years. For the other options to outperform the Protected IRA Plus Program, the client would have to live beyond their life expectancy of 87. If the client needs care, options one and two remain at a significant deficit to the Protected IRA Plus Program until 17 years later. The Protected IRA Plus Program loses only if both the client and their spouse LIVE past life expectancy and do not need extended or long-term care in that period. Given the statistics, the chances of that happening are exceedingly low.  If your clients are interested in being protected against the odds, then the Protected IRA Plus Program is the winning strategy.

In all scenarios, the client has more after-tax income with the PIPP program.

Your client can proactively live off more income and leave more tax-free money to their heirs upon passing while reducing their taxable estate and transferring it to a completely tax-free estate. If this strategy sounds like a good fit for some of your clients, watch the next video to discover the different versions of the Protected IRA Plus Program.

Himmelstein Financial©