estate planning

23Mar

Estate Planning IS Retirement Planning

BlogMarch 23, 2023

Retirement planning is an important part of ensuring financial stability in your golden years. It involves budgeting, saving, and investing to ensure you have the necessary funds to support your lifestyle when you retire. However, another essential aspect that is often overlooked in retirement planning is estate planning. Estate planning is the process of deciding for the management and distribution of your assets after your death. Here are some reasons why estate planning should be included in your retirement planning:

Protect Your Assets

Estate planning can help ensure that your assets are protected and passed on to your loved ones according to your wishes. Without a proper estate plan, the probate court will determine how your assets are distributed, which may not align with your preferences.

Avoid Family Disputes

An estate plan can also help avoid family disputes over your assets. It is not uncommon for families to fight over inheritances, and a clear and comprehensive estate plan can help prevent such disputes.

Minimize Taxes

Estate planning can also help minimize the tax burden on your estate. By taking advantage of strategies such as gifting and trusts, you can reduce the amount of taxes owed and ensure that more of your assets are passed on to your beneficiaries.

Plan for Incapacity

Estate planning can also include a power of attorney or healthcare proxy, which will allow someone to manage your affairs if you become incapacitated. This can be important in retirement, as the risk of cognitive decline or health problems increases as we age.

Peace of Mind

Finally, including estate planning in your retirement planning can provide peace of mind, knowing that your affairs are in order and your loved ones will be taken care of after you are gone.

In conclusion, estate planning should be an essential part of retirement planning. It can help protect your assets, avoid family disputes, minimize taxes, plan for incapacity, and provide peace of mind. It’s important to work with a qualified estate planning attorney to ensure that your estate plan is tailored to your individual needs and preferences.

21Feb

Benefits of a Mega Backdoor Roth

BlogFebruary 21, 2023

One strategy for retirement planning that has gained popularity in recent years is the Mega Backdoor Roth. This is a savings strategy that allows high-income earners to contribute large amounts of after-tax dollars to their retirement accounts.

What is a Mega Backdoor Roth?

A Mega Backdoor Roth is a savings strategy that allows high-income earners to contribute additional after-tax dollars to their 401(k) plan, beyond the traditional contribution limits. This is done by using the non-discrimination testing exception, which allows employees to contribute up to the IRS annual limit ($19,500 in 2022) to their 401(k), and then contribute additional after-tax dollars up to a plan-specific limit. These after-tax dollars can then be rolled over into a Roth IRA, where they can grow tax-free.

Benefits of a Mega Backdoor Roth

Tax-Free Growth

The primary benefit of a Mega Backdoor Roth is the tax-free growth of contributions. Once after-tax dollars are rolled over into a Roth IRA, they can grow tax-free, meaning that retirees can withdraw the money without paying taxes on the contributions or earnings. This can be a significant advantage for high-income earners who are in higher tax brackets.

More Savings

The Mega Backdoor Roth allows high-income earners to save more money for retirement. By contributing after-tax dollars to a 401(k) plan and then rolling them over into a Roth IRA, individuals can save more than they would be able to with traditional contribution limits. This can be particularly beneficial for individuals who are behind on their retirement savings.

No Required Minimum Distributions

Another benefit of a Mega Backdoor Roth is that there are no required minimum distributions (RMDs). Traditional IRAs and 401(k) plans require individuals to begin taking distributions at age 72, which can result in higher taxes and potentially push retirees into higher tax brackets. With a Roth IRA, there are no RMDs, allowing retirees to let their money grow tax-free for as long as they choose.

Estate Planning

A Mega Backdoor Roth can also be a useful tool for estate planning. By contributing after-tax dollars to a Roth IRA, individuals can leave a tax-free inheritance to their beneficiaries. This can be particularly beneficial for high-net-worth individuals who are concerned about estate taxes.

Overall, a Mega Backdoor Roth can be a powerful tool for high-income earners to save more money for retirement and take advantage of tax-free growth. However, it’s important to note that this strategy is not suitable for everyone. Individuals should consult with a financial advisor to determine if a Mega Backdoor Roth is the right strategy for their retirement plan. With careful planning and the right strategy, retirees can maximize their savings and prepare for a comfortable retirement.

25Mar

Working Smarter, Not Harder: Leveraging Your Life Insurance Policy

Podcast BlogMarch 25, 2022

An unconventional strategy for retirement, to maximize your life insurance policy is premium finance. Premium finance is where policyholders will pay substantial premiums via borrowing from a third-party lender—tying up the bank’s money versus your own capital. With some premium finance loans regular payments may begin shortly after the origination of the loan. However, there is a choice to capitalize interest into the arrangement with the expectation that the cash-value growth of the life insurance will outperform the accruing loan interest.

Premium financed life insurance allows the policyholder to purchase significantly more life insurance for a fraction of what is needed to support such a massive policy. This strategy keeps the policyholder’s other assets free to perform and produces an impressively tax-free internal rate of return for seemingly nothing out-of-pocket.

Ideally, the best method for premium financed life insurance polices is to create a compounding snowball effect for the cash value growth. The policy takes on the loan using built-in features. Moreover, it is when and if, the compounding cash value overcomes the hurdle of the premium finance loan’s interest rate. Future policy distributions may become death benefits to heirs, be tax-exempt retirement income, or possibly both.

How does premium financing work?

An affluent or emerging affluent individual with generally good health and a reputable credit rating may apply for a life insurance policy—be it for estate planning or retirement planning. For premium financing to occur, most of these policies will be whole life insurance or indexed-universal due to their stability and ability to offer higher loan-to-value ratio. With strong, long-term performance, the financed insurance policy will be funded at a maximum premium allowance for the first 4-7 years.

Depending on the situation, sometimes the borrower will pay the first premium themselves to avoid the need to post collateral. Often borrowers will involve a 3^rd party lender to the larger premiums with the intent to begin interest-only payments directly to the lender. However, to fully capitalize on premium financing, borrowers roll the accruing interest into the loan with the high hopes the cash growth will outdo the finance loan.

This goes to say, the policyholder should prepare for posting collateral. If designed correctly, the life insurance can serve as the collateral due to its cash value growth.

Benefits to Premium Financed Life Insurance Policies:

Ability to keep other assets active and growing.
Replaces need to pay insurance premiums during your high-income working years.
Potential for extremely positive arbitrage between cash value growth and premium finance loan rate.
Potential of tax-exempt retirement income or greater death benefit payout.
More cash value that compounds for you, not against you.

For more information on premium finance benefits and qualifications, listen to The Retirement Risk Show’s “Premium Finance: A Leveraging Method of Life Insurance” episode.