RAISE YOUR HAND if you have a "substantial amount" in a qualified retirement plan such as an IRA, 401(k), profit-sharing plan or the like. For our purposes, "substantial amount" means $300,000 or more.
This is a bad-news/good-news column.
First, the bad news, in the form of an example: Joe has $1 million in his 401(k). Two taxes destroy Joe's $1 million plan wealth. When Joe takes out just $1, the income tax (state and federal) grabs 40% (40 cents), leaving 60 cents. At Joe's death (using 2011 rates) the estate tax steals 55% (33 cents) of the 60 cents. What's the result? The family gets only 27 cents out of every $1; the tax collector gets 73 cents. If Joe dies with funds still in his 401(k), the tax collector still double taxes the balance (as described above).
So, dead or alive, the tax collector will get $730,000 of Joe's $1 million in his 401(k), the family only $270,000.
To make matters worse the IRS has, without warning, refused to favorably rule (as it did in the past) on a strategy called the "subtrust." The use of this strategy (subtrust) allowed us — depending on the client's marital status, age and health — to turn that $270,000 (as in Joe's example) into a range between $2 million and $6 million, all taxes paid in full.
The subtrust really only had one trick. It allowed you to use qualified plan funds to buy life insurance, and the death benefit was free of the income tax and the estate tax.
So, it was back to the drawing board for my network of experts and me.
And now the good news: We have come up with a new strategy (really a variation of strategies we have been using for decades) that gives the same results as a subtrust. We named the strategy the "Retirement Plan Rescue."
The core concept behind an RPR is to shift from a highly taxed environment (a qualified plan) into a tax-free environment (life insurance). Sorry, but if you are uninsurable or highly rated (have serious health issues), an RPR won't work for you. Have a healthy spouse? She or he will probably save the day and put an RPR in your planning picture.
The implementation of an RPR requires a great deal of expertise. In addition, each RPR (because of the many variables) is different and must be looked at on a case-by-case basis.
Finally, the big questions for readers are, "How will an RPR work for me and my family? What will my tax-savings be? How much tax-free wealth can I create?" Here's the information you should fax (847/674-5299) to me: your name, address and phone numbers (business, home and cell); total amount in all qualified plans combined (if married, same for your spouse); and your birthday (also your spouse's).
Hidden asset strategy
Does $120,000, $200,000 or more paid to you in cash sound interesting? Without any investment, risk or work? We call it the "Hidden Asset Strategy."
What is your hidden asset? It is your unused insurance capacity. For example, Joe (age 73) has total assets of $5 million (counting the assets of his wife, Mary). Joe's insurance capacity is normally 80% of his marital assets or $4 million. Joe can use his HAS to sell his insurance capacity for about 3% netting him $120,000 (3% of $4 million). The $120,000 is taxed as ordinary income.
Who owns the policy on Joe's life? Investors, who pay all premiums and will receive 100% of the death benefits.
Joe is typical of millions of seniors. He does not need or want life insurance. Or if Joe has $1 million in life insurance, he still has insurance capacity of $3 million, allowing him to use a HAS to receive about $90,000.
If you are 65 years or older, have insurance capacity and are insurable (or if not, your spouse is insurable) you can get in on the fun and profit.
In order to qualify, you must be between the ages of 72 and 86, have assets (including your spouse) of at least $2.5 million and be insurable.
A side (but important) note: Many senior readers of this column don't need or want life insurance. And sometimes these readers want life insurance, but, in spite of their wealth, can't afford life insurance because they don't have the necessary spendable cash flow. Finally, HAS is a way to help these senior readers.
The real question for each and every senior reader is, "How will a HAS work for me?" Here's the information you should fax (847/674-5299) to me: your name, address and phone numbers (business, home and cell); your birthday (same for your spouse); and your net worth (including your spouse).
Irving Blackman is a partner in Blackman Kallick Bartelstein, 10 S. Riverside Plaza, Suite 900, Chicago, IL 60606; telephone 312/207-1040, or via e-mail at [email protected].