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HNW Ideas, 2021 Tax Guide, CFP® CE Webinars and Roth Conversion Alternative

Many believe income taxes will be increasing and estate exemptions are likely to decrease.  This is not good for High Net-Worth clients.  For those with more than they need for a smooth retirement, there are smart estate planning considerations and often insurance may be a better fit than the usual strategies.  It is not what they make that matters, it is what they keep.  Advanced estate planning can reduce tax exposure and life insurance can minimize the cost. 

Roth Conversion vs Life Insurance

Roth conversions have been a hot topic – You pull money from your IRA and pay the income tax from non-qualified assets.  This is prepaying tax today with the expectation that taxes will increase down the road, and you avoid having to make distributions at 72 when you don’t need the money to live.  The problem is the asset is still in your taxable estate.  It might cause your estate to grow to the point where taxes are now due.  One example is state estate taxes in Illinois.  If your estate exceeds $4 million you pay tax from dollar one.  The Roth IRA could grow to be more than the insurance leverage amount.  If you compare the yield to “similar risk” options life insurance will often provide a better outcome.  If the estate is tax exposed; it is unlikely to be better unless you had stellar returns or live well beyond life expectancy.    

For a sample comparison:  Roth Conversion Alternative


The cost and value of liquidity

For some clients, the additional liquidity of life insurance proceeds can be of great value.  There is a cost to liquidity, it is often not properly measured or properly considered but imagine someone dying in 2008. The market was down, and borrowing was harder than ever.  Wealth obscures the need for life insurance; many clients believe they have enough to provide for their loved ones, so they don’t feel they need life insurance.  They might not need it; but have they considered the value of having it? 
Unlike other “projected” planning, life insurance is a known outcome with a guaranteed policy.  Last year Ed Slott said, “life insurance is the new Stretch-IRA”.  In a recent Forbes article, he said “I have to tell you as a tax advisor, who doesn’t sell life insurance or any financial product, the tax exemption for life insurance benefits is one of the single biggest pluses in the tax code and most people don’t take advantage of it!”

Learn more about the cost of liquidity via this real-life story: Wealth Obscures the Need for Life Insurance

Launch the following link for our 2021 Tax Guide.

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