The Role of Cash Value Life Insurance in Tax Diversification

Estate Taxes can certainly have a profound and negative impact on wealth, but this effect can be mitigated by more efficiently growing and preserving capital over ones’ lifetime through diversification techniques. These techniques should not be limited to diversification of asset classes in a portfolio to support capital growth but also consider tax diversification to prevent the erosion of capital.

Our latest white paper discusses this topic and can be downloaded below.

JNJ-Cash-Value-electronic-revisedDownload

Advisory services offered through Spearhead Capital Advisors, LLC. Securities offered through Spearhead Capital, LLC.  Member FINRA/SIPC. Please review Spearhead’s website for complete disclosures: Complete Disclosure Statement. Spearhead and JNJ & Associates, Ltd. are not affiliated by ownership.

Are You Aware of Your Tax Problem?

Losing money from IRA from taxes

Many clients have diligently saved for retirement and now the rules are changing. The ability to transfer accumulated retirement funds to their children and grandchildren are limited by The 2019 Setting Every Community Up for Retirement Enhancement Act (SECURE Act).  The Act has created a greater tax burden for IRA account holders’ heirs.

(See how your retirement accounts are impacted by the SECURE Act by participating in this survey: Retirement Tax Analyzer)

What Does the Secure Act Do?

For those with IRAs, the Act largely eliminated the ‘stretch’ inherited IRA strategy. Instead of a non-spouse heir being able to stretch the distributions from an inherited IRA over their lifetime, they now only have 10 years to empty the entire account.

Inherited IRA beneficiaries are impacted through this shortened, 10-year distribution period via:

  • larger distributions over a shorter period;
  • increasing taxable income of the beneficiary;
  • potentially increasing the marginal federal tax rate; and,
  • reducing the time funds inside the account have to grow tax-deferred, resulting in less growth for the beneficiary.
Impact of Secure Act on IRA

The table above (along with the assumption and analysis below) illustrate the “potential income-tax drag” resulting from the Secure Act of 35%.

Tax Solution to the Secure Act

IRA owners have an opportunity to create tax free income for their heirs by using life insurance. Given the Act requires an IRA owner to make minimum distributions (RMDs), what if the IRA owner used all or part of their RMDs to fund the purchase of a life insurance policy on their life? The beneficiary of the policy would be their heirs, either directly or from the trust. The policy death benefits would be paid to their heirs income tax-free. The result is: the replacement of fully taxable required distributions from an inherited IRA with income tax-free life insurance death benefit proceeds (possibly estate tax free).

Secure Act impacting your IRA
Life insurance and Secure Act

The life insurance proceeds reflected above are based on the current dividend rate of 6.10% at age 90 and purchasing paid-up additions with the annual dividends. Assuming a guaranteed dividend rate of 4.00%, the guaranteed death benefit is $1,761,720.

How Much Will You Lose to Taxation?

You are invited to receive a free income tax assessment of your retirement accounts by participating in this survey: Retirement Tax Analyzer

Advisory services offered through Spearhead Capital Advisors, LLC. Securities offered through Spearhead Capital, LLC.  Member FINRA/SIPC. Please review Spearhead’s website for complete disclosures: Complete Disclosure Statement. Spearhead and JNJ & Associates, Ltd. are not affiliated by ownership.

Private Placement Life Insurance and Annuities: An Alternative Wealth Planning Strategy

Robert R. Hall of Hall International Insurance Solutions LLC has written a white paper explaining PPLI and PPVA. Mr. Hall is well-known for his work in the HNW individual life insurance space with both U.S. and non-U.S. clients as well as scenarios involving US-nexus scenarios.

PPLI-PPVA-An-Alternative-Wealth-Planning-StrategyDownload

Advisory services offered through Spearhead Capital Advisors, LLC. Securities offered through Spearhead Capital, LLC.  Member FINRA/SIPC. Please review Spearhead’s website for complete disclosures: Complete Disclosure Statement. Spearhead and JNJ & Associates, Ltd. are not affiliated by ownership.

Is My Life Insurance on Track?

Many individuals own life insurance policies that are not on track to perform as promised. Here is why: improper policy design, unrealistic projections, underperformance of underlying investments, or changes in market conditions or credit ratings. Click below for a chart with some questions to ask yourself about your own coverage.

Is-My-Life-Insurance-on-TrackDownload

Advisory services offered through Spearhead Capital Advisors, LLC. Securities offered through Spearhead Capital, LLC.  Member FINRA/SIPC. Please review Spearhead’s website for complete disclosures: Complete Disclosure Statement. Spearhead and JNJ & Associates, Ltd. are not affiliated by ownership.

Lost Opportunity: Failing to Use Your Life Insurance Capacity

In the life insurance industry, we regularly see prospective clients miss out when they fail to utilize the capacity for coverage insurance carriers and reinsurers have placed on their lives. Realized, this capacity turns into permanent life insurance which can be used to care for a family, pay taxes, defend/transfer/grow wealth and protect business interests.

Our co-founder, Terry Navarro, and Jay Judas of Life Insurance Strategies Group, LLC, have written a white paper on failing to use your life insurance capacity.

Lost-Opportunity-finalDownload

Advisory services offered through Spearhead Capital Advisors, LLC. Securities offered through Spearhead Capital, LLC.  Member FINRA/SIPC. Please review Spearhead’s website for complete disclosures: Complete Disclosure Statement. Spearhead and JNJ & Associates, Ltd. are not affiliated by ownership.