RMD's

Really Messed up Dilemma?

We have all heard the term RMD's (Required Minimum Distributions).   For those who have or will have turned 701/2 during calendar year 2011, and have money in a qualified plan, they will be faced with an RMD (or Really Messed-up Dilemma). They have done a great job building up wealth within their IRA or other qualified plan, but they may not necessarily need to draw down on those funds to live. In fact, their other assets can support them comfortably.

Whether the funds reside in a Profit Sharing Plan, 401(k), 403(b), IRA , or basically any other employer sponsored retirement plan, these clients must start taking Required Minimum Distributions (RMD's) by April 1st of the year following the year in which they reach age 701/2.  If they don't, they can be subject to substantial penalties.  When the money comes out, it is taxed at ordinary income tax rates.

The forcing of these funds coming into the wonderful world of income taxation is only the beginning.   The problem is much larger than that.  After all, people do know that they had not paid any taxes on this pool of money and will probably except paying income taxes on distributions. What they are probably not aware of is the high probability of only 30% of the wealth they have accumulated will get to their heirs.   That's where the REALLY MESSED-up DILEMMA comes in or the real RMD.....

When they die with balances in their retirement plans, the entire corpus will endure Federal Estate Tax, State specific Inheritance Taxes and at the very least income taxes that have never been assessed during their lifetime. Sure there are techniques that can stretch out taxation, but these are just prolonging the inevitable and are often complicated to establish.

Employing simple techniques today, provides a more tax efficient means of passing on these assets to heirs.   By utilizing life insurance products, we are able to take distributions, pay income taxes on those proceeds and with the net after-tax remainder, purchase life insurance in an amount usually greater than the original taxable balance of the qualified account. The end result is replacing a taxable asset that would normally net the heirs 30 - 40% of the value with a tax-free death benefit equaling but usually substantially higher than the original qualified account balance.

In addition to life insurance, there are other techniques that utilize various annuity strategies.   Help your clients through this RMD - Really Messed-up Dilemma. We have many supporting materials that can show different strategies, all with the same goal of working through the planning process for your clients in this position.

Now is the time to open up the RMD Sales Opportunity and ALB is here to help.