- Married couple
- Ages 70 1/2 and above
- Middle American Income of $40-$70K
- The clients have $400K in assets, of which, $300K is qualified money
- They must take RMD's... they may not want to or don't need the money, but it is the law and they must take the money and pay tax
The new 2018 Standard deduction is $24,000 per married couple. Plus, if age 65 or older, an additional $1,300 each for a total of a $26,600 deduction (single is $12,000 plus $1,600 for a total of $13,600).
What can we do?
Let's assume that the couple is bringing in $50,000. We now exclude the first $26,600 (via the standard deduction) and now the taxable income is down to $23,400. But, he has to take the $5,000 RMD which pushes it up to a taxable income of $28,400. They pay a tax of 12%. Taxes owed on total amount (including the RMD) are $3,408.
Let's continue helping our client...
Use the $5,000 RMD to purchase a life insurance policy with accelerated benefits (to assist in possible long term care needs). This would create a tremendous tax free benefit to be passed down and we have eliminated a portion of the tax time bomb. Or... purchase a series of $5,000 premium, "single premium" policies that will increase the estate value and be placed in a tax advantaged position... you do this every year.
AND... don't forget the cross-sale opportunity!
While we are at it, why not take $100K of the qualified money, purchase a simplified issue single premium life policy providing approximately $170,000 of death benefit, an accelerated benefit in the event of chronic illness and place it in a position where it will be handed down tax free to their heirs. And, if they are in the 22% tax bracket... it's never been this good. But, wait... there is more, we have companies that pay a double digit first year bonus that could go a long way towards offsetting the tax.
Clients nervous? What about a return of premium on day one?
I am not giving tax advice and this was a hypothetical case. I have been doing this for a long time, and when an opportunity like this comes up, the good agents go out and help their clients do this. This is going to "make the life business great again." Plus, there will also be plenty of annuities to be had. And, if dealing with qualified money always use the "best interest standard".
Let's work your next case together
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