Mutual of Omaha Advanced Markets Minute

Mutual of Omaha Advanced Markets banner

Are Your Clients Unknowingly Making the IRS Their Primary Beneficiary?

Maybe you have worked with a couple like this: Jack and Jane are husband and wife, they are both healthy, in their 60s, and they have done a great job accumulating assets for retirement. You have developed a successful income plan for them, set up funds for emergency use, protected against long term care and other unexpected life events, but now are wondering what is next for planning?

Well, many clients do not understand that the wonderful vehicles they used to save for retirement income are not necessarily great vehicles for transferring wealth on to the next generation. If they transfer qualified assets, like IRAs or 401(k) assets, they will only be able to transfer a portion of that asset, while making the IRS the primary beneficiary of the rest. If your clients want to structure their retirement portfolio in a tax efficient way for legacy planning, it could benefit them to use part of their qualified assets now, pay the tax on distributions and purchase an asset that transfers 100% of the value to their children or grandchildren tax free, without any restrictions, and without the IRS as a co-beneficiary.

How about we assume your clients have around $300k excess in their IRAs–when I say excess, I mean they do not need those funds to satisfy their own retirement income plan–and they understand through your education and guidance that when that excess transfers to their beneficiaries at death, it could be reduced by income and/or estate taxes and will have restrictions on how their beneficiaries can take distributions. Your clients understand the risks and prefer to eliminate those risks by guaranteeing an asset, which could double in value day one and provide their beneficiaries the freedom to take distributions at any time, for any amount, tax free.

So your clients decide to transfer the $300k from an IRA Jane has into a qualified life only SPIA for Jane. This would produce a guaranteed income stream for her and pay a little over $14,050 per year. After Jane pays the taxes on that amount, she uses the remaining $8,850 to buy a Life Protection Advantage IUL life insurance policy designating her children as the beneficiaries. Now we assume that at preferred non-tobacco, age 60, guaranteed to age 90, she is able to purchase a $740k face amount. She just increased the value of her $300k taxable IRA to a $740k tax free asset overnight! That $740k is guaranteed, not dependent on averaging any particular rate of return and is paid out to her beneficiaries without taxes owed or restrictions placed on how they distribute the funds.

If you would like to work on a similar case with your clients, consider using the SECURE Transfer seminar and materials (flyer, invites, follow ups, etc.). Do not forget how powerful life insurance can be in planning for your clients!

Speaking of assets, watch in March for another article on Life Insurance as an Asset Class. And a quick reminder: the estate and gift tax thresholds for 2022 have increased to $12.06 million and the annual gift exclusion has increased to $16,000 per donee.

Call us in Advanced Markets if you have any questions – (402) 351-4287
To learn about this and other advanced markets ideas, request to join our LinkedIn group at this link:

This is for informational purposes only. Recommendations for financial product or financial strategies must be suitable for the individual based on their circumstances. Mutual of Omaha and its representatives do not provide tax or legal advice. Clients should always seek advice from a qualified professional.

Mutual of Omaha Advanced Markets Minute