This course was created to teach advisors (CPAs, EAs, accountants, attorneys, financial planners, and insurance advisors) about how to avoid the 70-80% tax trap of money in a qualified plan or IRA as well as how to coordinate the purchase of life insurance and retirement benefits.
Most advisors do not make recommendations when they run into clients with estate tax problems and sizable assets in IRAs or qualified plans. While some advisors understand that the deferred income is a double tax trap waiting to explode, many do not really understand the problem. This material will explain how to calculate the double tax as well as provide a unique solution for how to mitigate the double tax dilemma (and the solution is not the marginally useful “stretch IRA”). Once advisors know about the double tax dilemma and the viable solutions for how to mitigate the problem, those advisors will truly be unique in their local areas
Qualified Plan Insurance Partnership®
Mitigating the “70-80% Tax Trap”
2. Example of the 75% tax trap
Steps for Successful Coordination of Life Insurance and Retirement Benefits
3. Consider The Power Of Tax-Free Compounding.
4. Review The Minimum Distribution Rules.
a) Minimum Amount to be Distributed to the Participant.
b) Distribution Rules for Roth IRAs.
5. Plan For The Payment Of Estate Taxes
a) IRA assets to be used to pay the tax
b) Stretch IRAs do not work for people with estate tax problems
c) Life insurance could be used to pay the tax
6. The Use Of Retirement Accounts To Pay Insurance Premiums
a) Should clients use retirement account assets to pay life insurance premiums
b) There are four “traditional” ways to pay life insurance premiums in retirement plans.
c) Valuing a life insurance contract owned by a qualified plan
d) IRC § 408(a)(3) limits with IRAs
7. Qualified Plan Insurance Partnership ®
a) Prohibited Transaction Rules
b) IRC and ERISA prohibited transaction
c) Disqualified “persons”, the 50% rule
d) LLCs and FLP are not disqualified “persons” when setup correctly
e) Potential problems when using LLCs or FLPs as investments in IRA or qualified plans.
a) Using a QPIP to purchase insurance with IRA assets
b) The “Plan Asset Rule” and its application to an IRA’s investments in a LLC
c) Why the Plan Asset Rule should not be applicable to a QPIP