What if I could show you how to buy dollars with pennies, would you be interested? If you or someone you know is 65 or older, this financial secret is something you certainly want to know about. There are people who are saving their individual retirement account (IRA) for a rainy day or an emergency. Believe it or not, these IRA accounts often are never spent by their owner. People who own these like the idea of having a nest egg to pass to their loved ones if they never need it during their lives.
The After 70 ½ Rule for Your Ira
One major financial setback of an Ira is that sometimes these accounts are taxed upwards of 50 percent when they pass it to their heirs. As people age, Uncle Sam gets greedier. For example, John is 71. He has a pension from his job and social security that covers all of the monthly expenses. He also has $75,000 sitting in an IRA. There is currently a tax code in place that makes it mandatory for John to take money out of his IRA account even if he has no need or desire to spend that money. This is true for anyone who is 70 ½ or older. Worse yet, John has to deduct money out of that account each and every year.
Uncle Sam Needs Your Money Even After You Retire
In case you are wondering why John is forced to take money out of his personal account, the government wants him and everyone else his age to take a distribution each year because individuals pay taxes on the money they withdraw. The reason why this occurs is because taxes are the fuel that runs the government engine. If there are millions of retirees withdrawing money, there are billions in tax revenue generated for the government. As you continue to read, there is a way to turn this “have to” money into “want to” money. In other words, you are going to learn how to look forward to putting a required minimum distribution to work for you.
How to Make Uncle Sam Work in Your Favor
You will most likely be shocked to find out that cash value life insurance is the answer. One reason why people shy away from life insurance is because the annual premiums are so high. This becomes the perfect scenario for a retirement account that has a required minimum distribution (RMD). Instead of John spending money from his (RMD) on unnecessary purchases, he can take that money and purchase a policy that will last for the rest of his life. Perhaps the best advantage is that the money passes to the beneficiary tax free.
Since the distribution is tax free, John has great flexibility with his IRA as long as he knows that he intends to save it for an emergency and pass it to his loved ones. If we compare John’s options side-by-side, it will be easy to conclude the decision that would be in John’s best benefit. If John keeps his money in his Ira, he will have to withdraw money from his account yearly. If the amount taken out is more than the interest earned the value of his Ira is going to decrease. When John dies, the entire amount left over will be taxed before his heirs receive the money. If John places his money in an insurance policy, he may end up spending all of his money down in his Ira as he transfers that money to his insurance policy on an annual basis. However, the difference is that if he purchases a $75,000 policy, the entire $75,000 plus any earned interest will pass to his heirs. If done properly, this strategy will always allow anyone to pass more money to their loved ones without any out-of-pocket expenses.
Obviously, every situation is unique. If you live in the greater Los Angeles area or the Inland Empire, please feel free to ask one of our experts if you need help to maximize the amount you pass to your loved ones, church, or even your favorite charity.