Tax-advantaged retirement accounts are some of the most popular ways to save for retirement, this includes your 401k’s, IRA’s, 403b’s, 401a’s, and Roth’s, etc. The idea was, when IRA’s and 401k’s became popular, you would expect to be in a lower tax bracket at retirement. The idea was to lower your tax obligation now, while working, but you would have to pay the taxes at a lowered rate when you triggered income at retirement. The problem with that is due to Social Security being counted in your taxes up to 85%, many people are in the same or higher tax brackets in retirement as when they were working. We teach our clients how to strategically De-Fund your (IRA) qualified accounts and potentially create a tax-free strategy. The question that needs to be asked, is do you want to pay taxes on the “Seed or the Harvest”?
IRAs can’t eliminate your taxes, and this can leave retirees and beneficiaries with potentially unexpected or unplanned tax bills when they retire. Ask about our Roth Roll-Out Strategies! Our P-SLIP™ (Properly Structured Life Insurance Plan)* that can potentially protect you from life events, such as nursing home or chronic illnesses that can occur when you retire. Let the Prosperity Group help you create these strategies that can be life changing for you and your family during your retirement years. Ask about how we can help you create a “Pension-Like Income™” Implement your IRA Rescue Strategy with the support of Prosperity Group professionals. Don’t be like many people and have 90% of your money strategies be 100% taxable!
Understanding the Basics of IRA Rescue Strategy
An IRA rescue strategy is a plan for moving money out of traditional IRAs into other accounts to lower your tax burden for yourself or your beneficiaries. There are two IRA plan types: traditional and Roth. When you save money in a traditional IRA, you can invest pre-tax dollars (meaning you don’t pay taxes on your contributions), and the contributions grow tax-free for decades. However, all the money you withdraw from your IRA as retirement income will then be taxed. This is a burden for retirees, and required minimum distributions (RMDs) could even push you into a higher tax bracket.
An IRA rescue strategy can divert funds from a traditional IRA to a Roth or our P-SLIP™ strategy*, which might be more suitable for you and your situation. For example, you could consider a Roth rollout strategy that would convert your IRA over a 5-10 year period and thus mitigate putting yourself in too high a tax bracket (as opposed to if you had converted your IRA all at once). You might have dramatically hurt your tax position which could raise your Medicare costs substantially. It’s always best if you plan far enough in advance – you could start your conversion strategy while working, or before RMDs go into effect. But even for those of you who did not plan early, you may still be able to take advantage of some of these tax strategies.
Key Components of an IRA Rescue Strategy
There are many different approaches investors can use to create an effective IRA rescue strategy. Depending on the size of your investments and the structure of your overall retirement plan, you might use one of our approaches or a combination thereof. Different components of your plan might be:
● Roth Conversions: If you want to maintain easy access to your retirement funds, one time-tested approach is Roth Conversions. Convert a portion of your account to a Roth IRA every year. A financial advisor can help you select the right size of the conversion based on your current income and tax bracket to minimize tax payments and complications. Any money you convert to your Roth will grow tax-free, and you can withdraw it without additional taxes.
● Our P-SLIP™ or Roth Roll-out Strategies
● Donations: Donations from your Traditional IRA can lower your tax obligations. This tactic is ideal for people who make donations every year, as you can simply pull from your Traditional IRA instead of general funds. You can even use a QCD strategy beginning at 70 years old.
● Learn the most efficient way to convert your IRA for a pension like income for you and your spouse. Whatever is left over would go to your family.
● Life Insurance (P-SLIP strategy™)*: Sometimes, you can use Traditional IRA funds to purchase life insurance. The resulting death benefit that gets paid out to your beneficiaries is tax-free.
Benefits of Roth Accounts in an IRA Rescue Strategy
While there are many different approaches to creating an IRA rescue plan, Roth IRAs are the most important and most commonly known strategies. Roth IRAs don’t trigger RMDs later in retirement, and you can withdraw the money tax-free. This allows you to predict (and often lower) your tax bracket in retirement, so you can more effectively plan your budget and your retirement. Our P-SLIP™* strategy, in lieu of a Roth, would potentially give you a tax free death benefit and tax free income stream with living benefits.
Experienced advisors can help you maximize the benefits of Roth accounts by:
● Calculating the right Roth conversion amounts over time or our Roth-ing Strategy
● Exploring the potential benefits of a backdoor Roth IRA in your overall retirement strategy
● Exploring the additional benefits of the five-year rules for Roths as you transition to making withdrawals
Contact Us at Prosperity Group to Learn More About an IRA Rescue Strategy
An IRA rescue strategy can significantly lower your retirement tax burden and help your beneficiaries. The earlier you start, the more savings you can realize. The Prosperity Group can help you assess your current holdings and create a strategy tailored to your retirement and estate goals. Contact us today to learn more and start building your IRA rescue plan, and don’t forget to visit our YouTube channel for helpful videos and expert insights.
If you want an introduction to some of these concepts, order a FREE copy of Greg’s book, Prosperity ABCs.
*Section 7702 of the U.S. Internal Revenue Service (IRS) – addresses rules on taxation for life insurance policies, and if they’re properly structured (Income could be tax free as well as the death benefit). Subject to MEC limits.
**Any references to guaranteed income or pension-like income on this website pertain solely to insurance products. Guarantees are based on the claims-paying ability of the issuing insurance company.