Tax-Advantaged Retirement Income Planning
Welcome to the beautiful summer in our Lake Norman region. Hopefully you’ll find some time to enjoy the lake, waterfront restaurants, and all the fun outdoor events offered in our community. While you’re on summer breaks, it’s also a great time to review your current financial and retirement planning.
One thing that we’ve seen coming up a lot recently is the concern around future rising tax rates and how it may affect retirement savings and income. As it currently stands, the current tax rates are scheduled to sunset in 2026, leaving some room for potential tax planning over the next few years. One of the things we’ve been planning a lot with are Roth IRA conversions.
This may be beneficial for those that believe they may be in a lower effective tax rate now versus where the tax rates may be when you’re withdrawing retirement funds from IRAs and 401(k)s, for example. Doing partial Roth IRA conversions may help with a future rising tax rate environment giving another source of retirement income that is tax-free while also not having a Required Minimum Distribution (RMD) regulation which is now updated to age 72. The taxes would be paid now on the conversions, while shielding those assets from any future taxes.
Another source that we find for clients that may be outside the income limits of contributing to Roth IRAs ($208k) or those that may want to contribute more than the $6,000 - $7,000 annual limit is using Life Insurance as a Retirement Plan, or LIRP.
An LIRP may be a good source of tax-deferred growth for those that have more than 6-12 months in liquid savings, already match their employer’s 401(k) and are looking for another source for retirement savings. A few benefits of an LIRP as a Roth IRA alternative are no income limits, no contribution limits, and future supplemental tax-free income, while also providing life insurance benefits and potential long term care benefits, if ever needed. Basically, life insurance you don’t have to die to use!
We typically find that a fixed indexed universal life insurance policy fits the needs best for an LIRP for the advantages mentioned above as long as they are very carefully structured and funded properly. The primary disadvantage would be short-term liquidity or not being able to qualify medically for insurability. The underlying net performance of the indices historically has been about 5-7%, giving a safe, but productive vehicle for tax-free growth and income which has been in high demand, given the current low interest rate environment for savings accounts, CDs, and Money Markets. Annual returns are usually limited to around 0-20%, providing upside market potential in good years and protecting completely against market losses. It can be a great vehicle for those that have too much in liquid savings or have discretionary income looking to save somewhere more tax-advantaged.
Should you be considering adding an LIRP to your retirement portfolio or Roth IRA conversions? If you’d like a complimentary second opinion for your financial planning, please reach out to Douglas Marion with Advanced Wealth Strategies. Feel free to call or text (704) 765-3653 or email Douglas@PlanWithAWS.com. Their local office is conveniently located at 19520 W. Catawba Ave, Suite 313 in Cornelius. As fiduciaries, their independent firm will put your best interests as priority.
Investment Advisory Services offered through AlphaStar Capital Management, LLC., a SEC Registered Investment Adviser. AlphaStar Capital Management, LLC and Advanced Wealth Strategies, Inc. are independent entities. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level or skill or ability. Insurance products and services are offered through Advanced Wealth Strategies by individually licensed and appointed agents in various jurisdictions. Opinions expressed are subject to change and are not intended as investment advice or to predict future performance. The views presented here are the views of Advanced Wealth Strategies. Advanced Wealth Strategies does not offer legal or tax advice