Help Make Your Retirement Assets More Valuable

Sam Lingo
Aug 12
5 min read

Discover A Way to Help Make Your Retirement Assets More Valuable

Due to careful retirement planning, some individuals find that they have more in retirement assets than they actually need to live on. Many of those individuals express a desire to leave their Individual Retirement Account (IRA) or qualified plan assets to a loved one. However, this can be difficult because IRAs and qualified plans are subject to estate taxes at death and income taxes on any withdrawals, which reduces the amounts left for heirs. Fortunately, there’s a way for those who have too much pre-tax money in these types of plans to work to make the most of those funds for their loved ones. How? By using the required minimum distributions (RMDs) they must withdraw from those account(s) every year¹ to fund the premiums on a permanent life insurance policy that names their loved one(s) as beneficiaries. Ultimately, the death benefit provided by the life insurance has the potential to provide far more assets than the IRA proceeds alone would have (if the life insurance had not been purchased).

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The IRA Maximization Strategy

If you’ve got retirement assets you don’t need for your current expenses and would like to pass on to your children and/or grandchildren, you may wish to consider using the IRA Maximization strategy. With this strategy, permanent life insurance can serve as a tax-advantaged protection vehicle that may help you make the most of the money you withdraw from those retirement accounts for your heirs.

How the IRA Maximization Strategy Works

When you implement the IRA Maximization strategy, you use the net proceeds of the money you are required to withdraw from your IRA or qualified plan account(s) each year to purchase a permanent life insurance policy (ordinarily owned by a trust) that names your loved ones as beneficiaries. When you pass away, the remaining balance of your IRA (after any Income in Respect of a Decedent (IRD)/estate taxes) is distributed to your beneficiaries. The life insurance/trust proceeds also go to your beneficiaries.

The Advantages

Implementing the IRA Maximization strategy offers advantages for both you and your loved ones:

Additional financial confidence for your loved ones: The amount that your heirs ultimately receive can be greater than they would have received if you had not purchased life insurance.
The ability to convert a taxable asset to an income tax-free one: Through withdrawals to help fund the premiums, you will slowly convert an asset subject to taxes (your IRA or qualified plan account) to one received income tax free — life insurance.
The potential to save money on taxes: If the life insurance is designed properly, estate and generation skipping taxes may be avoided.
Potential cost savings: The death benefit payable to the trust when you pass away will be excluded from your gross estate.
Access to cash: Permanent life insurance policies build cash value,² which the policy owner can access in emergencies. If your policy is not owned by a trust, you may use income tax-favored loans and withdrawals to access the cash value.³

Special Considerations Before Implementing the IRA Maximization Strategy

Before committing to this strategy, be sure that you:
- have enough retirement income from sources other than your IRA RMDs; and
- want to use the money in your unneeded IRA or qualified plan account(s) for the benefit of your loved ones — and not some other purpose; and
- would like to use your RMDs to help pay the life insurance premiums — and that you can afford the premiums if the RMD is insufficient to pay the entire premium.
If you have non-spouse beneficiaries: Under the SECURE Act of 2019, most non-spouse beneficiaries of inherited IRAs have to take their RMDs within 10 years of the owner's death, rather than “stretching” them over their lifetime (as a spouse can). That may have serious tax consequences for the beneficiaries you’ve designated to receive your retirement assets. On the other hand, if you implement the IRA Maximization strategy, your beneficiaries would receive the proceeds from your life insurance policy income tax free.

In Conclusion

This article only briefly summarizes the IRA Maximization strategy. Those considering implementing a solution such as this should work with their financial, tax, and legal professionals to understand the role it could play in their overall estate plan — and whether it might be a good fit for their individual situation.

DISCLOSURES:

¹ Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

² Some whole life policies do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial professional and refer to your individual whole life policy illustration for more information. Dividends are not guaranteed. They are declared annually by Guardian’s Board of Directors.

³ Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under age 59½, any taxable withdrawal may also be subject to a 10% tax penalty.

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The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named representative, broker - dealer, state - or SEC - registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

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Samuel B. Lingo is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 419 Plum Street; Cincinnati, OH 45202. Phone: (513) 579-1114. Securities products and advisory services offered through PAS, member FINRA, SIPC. Mr. Lingo is also a Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. Lifetime Financial Growth is not an affiliate or subsidiary of PAS or Guardian and is not registered in any state or with the U.S. Securities and Exchange Commission as a Registered Investment Advisor. Exp 11/25