Legacy Planning with IRA’s
Some clients have done an excellent job of saving and investing. By retirement, they may have accumulated millions in their IRA yet have the flexibility to draw income from other assets. Now that the Stretch IRA has been eliminated, these large accounts can create unintended tax consequences for heirs. For the right client, life insurance can be a powerful tool to transform a taxable inheritance into a tax-free legacy.
A Taxing Matter
Conventional wisdom says: If you don’t need your IRA for living expenses, let it grow and only take the Required Minimum Distributions (RMDs) when necessary. While this may work as an income tax strategy, it often creates a larger tax liability for heirs. The “tax time bomb” keeps ticking—and what looks efficient during life may be costly in estate planning.
A straightforward strategy is to reposition a portion of IRA assets into life insurance. This can:
- Provide tax-free death benefits to heirs
- Add liquidity and flexibility to the overall plan
- Offset potential estate taxes (when owned outside the taxable estate)
For clients with charitable intent, one option is to leave the IRA to charity—avoiding income taxes altogether—while using life insurance to replace the value of those assets for heirs.
Legacy Planning with IRA’s (VIDEO)