What’s better: A Stretch IRA or Life Insurance?

Retirement, Income, Tax & Estate Planning.

What’s better: A Stretch IRA or Life Insurance?

August 14, 2014 Estate Planning Investing Newsletter Retirement Planning Trusts 0

Ed Slott is probably the most well-known IRA expert in the country.  I’ve had the pleasure of breaking bread with Ed several times over the past ten years and enjoy not only his huge reservoir of IRA knowledge but his keen sense of humor.  Rarely does a weekend go by that Slott isn’t quoted in either The Wall Street Journal, Barron’s or one of the numerous investment rags I read religiously.

In a recent column in Investment News (read article here*) written by Ed Slott, he says “no one is a bigger fan of the so called ‘stretch IRA’ than me” and goes on to say “I’ve been touting its benefits for over 20 years.”  But then Slott goes on to state the three reasons it makes sense to replace the stretch IRA with life insurance…if you are insurable.

Here are the three reasons Slott feels life insurance has big advantages over the stretch IRA:
1.Life insurance distributions to beneficiaries are tax free
2.Life insurance is not subject to required minimum distribution (RMD) rules
3.Life insurance is not buried with complicated tax rules

Whether you leave an IRA or a life insurance policy, setting up a trust often makes sense to protect these assets from falling out of the bloodlines.  For those that choose to transition IRAs to Life Insurance, setting up a trust is easy and will protect this tax-free inheritance.

For those that either can’t wrap their arms around life insurance or are not insurable, setting up an IRA Inheritance Trust is key to insuring your heirs don’t make mistakes that end up causing huge tax bills while also ensuring that your lifetime of savings do not fall into a son-in-law or daughter-in-laws hands verses your grandkids once your child dies.

Confused?  Have a bunch of questions? I can help you decide if life insurance makes sense for you while Jeremy will help you figure out if a trust is appropriate.  Give us a call or e-mail me back for questions or to match up calendars.

Have a fun weekend…

Peter Signature

Your Retirement Quarterback®

*This article was written as a way for financial advisors to help their clients…but I thought it was such a good column that I wanted to share it with you as he wrote it.