Supercharge your IRA with Life Max

As most of you already know, taking early withdrawals from accounts such as your IRA or 401(k) are subject not only to ordinary income tax, but are also subject to a 10% early withdrawal penalty. In recent years, some IRA rules have changed to eliminate the 10% penalty on early withdrawals for certain limited reasons such as the first time purchase of a home or education costs. However, there is a little known rule that allows for penalty free withdrawals before age 59 1/2. It's called Rule 72t.

Rule 72t is an obscure rule in the internal revenue code that allows for early withdrawal from qualified retirement accounts for any reason. The only catch is that you must take at least five "substantially equal periodic payments." The amount of the withdrawal depends on a relatively complex calculation which takes into account your account balance and life expectancy, among other factors. The IRS allows us to use on of three approved method for this calculation. So, great, penalty-free withdrawals are available from IRAs. So what? Well, this is the time to begin planning on how you intend to use your IRA in the future.

Many of my senior clients actually despise their IRA accounts. They defer taking the money out because they don't want to pay income taxes on the withdrawals. ROTH conversion rules are very restrictive, so many don't elect to do a ROTH conversion. So, what's the alternative? I'd like to discuss an alternative strategy to leverage the most beneficial effects of the ROTH IRA (namely, the power of tax deferred growth and TAX FREE withdrawals) with Rule 72t's penalty-free early withdrawal provisions. What is this alternative strategy? It's a little something we like to call Life Max.

Life Max is a unique strategy that combines the use of your IRA funds, Rule 72t and permanent life insurance. The strategy entails withdrawing funds from your retirement accounts to fund a permanent life insurance policy. This policy can be used for future tax free income or as an efficient wealth transfer vehicle depending on your individual circumstances. With Life Max, you can withdraw all or part of your IRA balance and quickly pay up a permanent life insurance policy where your cash values can grow tax deferred, just like in your IRA. However, unlike your IRA, cash can be withdrawn from permanent life insurance policies on a tax free basis (as policy loans). If your goal is to "leave your IRA for the kids", Life Max is a much more efficient way to transfer cash to your heirs. Life insurance proceeds go to your beneficiaries income tax free. IRAs and other qualified retirement accounts are considered IRD (income in respect of a decedent) assets. This designation makes IRAs a terrible asset to pass on, because it is subject to both income and estate tax (where applicable) when you pass on. Transferring the value of your IRA into a paid-up permanent life insurance policy will make sure the kids get the most out of your IRA.

Is the Life Max strategy right for you? Call me at (702) 240-4621 to schedule an appointment to see if Life Max fits in your financial plans.