Introduction
Welcome to today’s cardinal lesson where we’ll explore an innovative strategy that might just change the way you think about your retirement accounts. In this discussion, we’re diving deep into the world of using your IRA/401K funds to secure Long-Term Care Insurance. But that’s not all—there’s a specific company we trust for this, and numerous clients have already benefited from this game-changing approach.
The Cash Conundrum
One of the major hurdles many people face is the lack of readily available cash or liquid assets to cover a substantial non-qualified transfer of $200,000. Most individuals don’t have stacks of cash lying around, nor do they want to liquidate their savings or brokerage accounts for this purpose. That’s where our strategy comes into play. It offers a way to secure Long-Term Care Insurance without the need for significant out-of-pocket cash.
Meet Our 65-Year-Old Couple
To illustrate the power of this approach, let’s consider the case of a 65-year-old married couple. Currently, they have no immediate plans to tap into their IRAs and intend to wait until age 73 for distributions. Our strategy presents them with an opportunity to transfer a portion of their IRA funds into a policy that will provide them with Long-Term Care coverage for life. This is a proactive step towards safeguarding their retirement.
Why Are We Highlighting This Today?
Our guest, Tom, will explain the significance of this strategy. The primary reason behind this discussion is the focus on Long-Term Care benefits. It addresses one of the most substantial risks retirees face—the unpredictable nature of needing Long-Term Care, which can be financially devastating. By using your IRA funds wisely, we aim to demonstrate how you can protect yourself and your family from this risk.
Exploring the Details
For those interested in the nitty-gritty details, we’ve prepared show notes with a full illustration of this policy. You can find them in the link below or on our website. While we’ll provide a simplified overview in this discussion, the show notes contain comprehensive information for those who want a deeper dive.
The Three Buckets: IRA, Distribution, and Long-Term Care Insurance
Let’s break down the strategy into three buckets:
IRA/401K Funds:
This represents your entire retirement savings, which could be spread across various accounts. In the case of a married couple, it covers both of their IRAs.
Distribution Strategy:
We address the problem many people face in their 60s—lack of a clear plan for distributing their IRA money over their lifetime. Our approach involves rolling over or transferring $200,000 of your IRA into a tax-free transfer to an IRA at the insurance company. This $200,000 is designed to be distributed over 10 years.
Long-Term Care Life Insurance Policy:
This is where the magic happens. The $200,000 is used to fund a Long-Term Care Life Insurance policy. Each year, $25,000 is paid into the policy for 10 years. This policy comes with a $225,000 death benefit.
Lifetime Benefits and Tax Efficiency
The beauty of this strategy is that it provides lifetime Long-Term Care benefits. If you and your spouse never use the Long-Term Care insurance, your beneficiaries receive the $225,000 death benefit tax-free. Even if one of you uses Long-Term Care benefits for a period, your heirs will still receive a reduced death benefit.
Additionally, the Long-Term Care benefits themselves are tax-free. This approach not only addresses the need for care but also offers tax efficiency.
For Non-Spousal Beneficiaries Too
This strategy isn’t limited to married couples. It’s also an excellent option for non-spousal beneficiaries of IRAs. The Secure Act’s rules, which require non-spousal beneficiaries to distribute the IRA over 10 years, align perfectly with our strategy. It allows beneficiaries to meet IRS requirements while benefiting from Long-Term Care coverage.
Fit for Your Financial Plan
This approach is particularly relevant for individuals with substantial IRAs or 401ks they don’t need to live on. Instead of letting these accounts sit untouched, it’s a proactive way to allocate funds and plan for potential Long-Term Care needs. It also addresses tax concerns and aligns with estate planning objectives.
A Powerful Strategy for an Uncertain Future
In conclusion, this strategy offers a compelling way to utilize your IRA/401K funds for Long-Term Care Insurance. It not only addresses the pressing need for care but also optimizes your retirement assets in a tax-efficient manner. Long-Term Care is a significant retirement risk, and our aim is to show you how you can mitigate it using your IRA funds.
For more detailed information and personalized guidance, feel free to reach out to us. Your financial security and peace of mind are our top priorities.
Thank you for joining us on this cardinal lesson. We hope you found it enlightening and empowering for your retirement planning.