For some background on the SECURE Act, you can learn more about it from my webinar. It’s most important impact was the elimination of the stretch IRA.
By eliminating the stretch IRA and requiring distribution of inherited IRAs to most non-spouse beneficiaries within a ten-year period (my webinar has more on this aspect), the government can get their hands on your beneficiaries’ money sooner.
What does all this mean? Frankly, it raises the point that traditional IRAs and other tax-deferred retirement plans may no longer be the best option for leaving funds to beneficiaries.
IRA guru Ed Slott, a CPA and frequent PBS contributor, says many people should consider replacing their IRAs (a poor estate planning asset) with life insurance (an excellent estate-planning asset that has become even more valuable), since the single biggest benefit in the tax code is the income tax exemption for life insurance. He calls life insurance the best, most cost effective yet amazingly underutilized strategy for protecting large retirement account balances.
No wonder. It’s not subject to any post-death SECURE Act limitations; proceeds generally flow income tax free, and it’s more flexible if utilizing a trust. It can simulate the aspects of a stretch IRA without the tax complications of an IRA trust.
Interesting? Worth learning about. This strategy isn’t appropriate for everyone. You should talk with an advisor about your specific situation – that happens best by completing a formal financial plan, preferably with a CFP® professional – to see if this, or maybe some other, strategy might be right for you.
Jim
