The IRA rollunder — a concept with guaranteed resultsArticle added by Jeffrey Berson on May 17, 2013
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Jeffrey Berson

CARLSBAD , CA

Joined: May 27, 2003

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What is the IRA rollunder?

The IRA rollunder is, without a doubt, the most exciting estate planning and preservation technique in use today. One of America’s best-kept secrets, the IRA rollunder strategy utilizes time-tested strategies that provide guaranteed results.

The most highly taxed asset in our estate is the IRA. Qualified money has never been taxed, and our good friend Uncle Sam has been waiting patiently for many years to get his “pound of flesh.” In fact, in many cases, up to 70 percent of an IRA can be lost to taxes when we try to pass on our qualified plan to the next generation.

The key to the rollunder strategy is the guarantee that supports all aspects of the plan. While we are alive, we take systematic steps to transfer to an IRA and then to our heirs in a more efficient manner. We cannot totally eliminate the taxes on the qualified plan, but we can minimize the taxes today and maximize the legacy to our heirs. In this way we “rollunder” the tax and provide a lasting tax-free benefit to our heirs.

Is the IRA rollunder appropriate for you?

In evaluating the rollunder as a wealth transfer technique, we must look at the overall goals and objectives of the individuals involved and compare them to their current estate and asset allocation. Are there significant dollars in the IRA? Is the money in the IRA being used to provide current income? Do you have a desire to see that your IRA is used to provide a legacy for your heirs? Your estate planning team considers all of these factors as they determine the value of the rollunder technique for you. As part of this process, we can provide you with a snapshot of how the current tax environment would affect your IRA if you were transferring today.
IRA rollunder: the steps involved

While you are alive, you can take steps to transfer your IRA to your heirs today. You can guarantee all the elements of your program by using specially designed financial products. The rollunder utilizes cash-rich life insurance with maximum guarantees as the main source of transferring wealth. This is the form of life insurance that many Fortune 500 companies are using today. It was not long ago that a person 75 years of age or older couldn’t even purchase this type of protection. But that was then, and cash-rich life insurance has evolved over the years to include guarantees that provide coverage for the rest of your life on a guaranteed basis.

Life insurance with these types of guarantees is usually the best choice for transferring wealth. The reasons are many. For example, the death benefit is paid at death. It is the only financial vehicle that matures exactly when your beneficiaries need it the most. Yet another reason is that cash-rich life insurance has income tax-favored treatment. Not only is the cash buildup free of income taxes, but the death benefit is as well.

For funding the cash-rich life insurance, we also use a product with specific guarantees. This product is called a single premium immediate annuity (SPIA) and is often used by government entities to provide lifetime incomes to lottery winners. The SPIA provides an income that cannot be outlived and can be utilized by either a single individual or a married couple. As long as one person is still alive, the income stream will be generated. This is important, as we want to be sure that the funding of the cash-rich life insurance will not be interrupted and the benefits will be available upon death on a guaranteed basis.

The actual IRA rollunder steps are as follows:

Determine what portion of your IRA you want to rollunder.
  • With the rollover amount, purchase a SPIA with a guaranteed income stream.
  • Begin taking the distributions from the SPIA.
  • Pay the income taxes on the distribution.
  • The net income stream is then used to fund the cash-rich life insurance with the guaranteed death benefit.
  • Have a trust own the policy so the benefit is outside your estate.
  • Name your heirs as the beneficiary.
Commonly asked questions about the IRA rollunder:

Why are taxes so high when we transfer our IRAs to the next generation?

Qualified money, such as the money in your IRA, has never been taxed and has grown tax-deferred throughout the life of our plan. This means that any distribution from the IRA is subject to income taxes. Upon death, your heirs will also be subject to the same income taxes. In addition, if the IRA is part of your estate and your estate is large enough to be subjected to estate taxes, then the IRA will also be subject to estate taxes. This is double taxation and can eliminate up to 70 percent of your IRA.

Why do we use cash-rich life insurance as part of the IRA rollunder?

Cash-rich life insurance with death benefit guarantees are usually the best choice for transferring wealth. The reasons are many. For example, the death benefit is paid at death. It is the only financial vehicle that matures exactly when your beneficiaries need it the most. Yet another reason is that cash-rich life insurance has income tax favored treatment. Not only is the cash buildup free of income taxes, but the death benefit is as well.

Why do we use a single premium immediate annuity (SPIA) in the IRA rollunder?

The money in your IRA can be used to provide a lasting legacy for your heirs by utilizing the rollunder techniques. The key elements of the plan are that the income stream that is created by the SPIA cannot be out lived. Any other investment would be at risk to market fluctuation and may not provide the funding necessary to ensure the cash-rich life insurance will be properly funded.

How does my age affect the IRA rollunder?

As most people are aware, cash-rich life insurance premiums are based on the age of the insured. The older we are, the higher the premiums will be. On the other hand, when we use the SPIA as the funding vehicle, the opposite is true. The income stream is also calculated on age; however, the older we are, the higher the payout will be. This helps to make the rollunder strategy viable for just about any age.

What happens if the tax laws change?

Tax laws change, and so should your estate plan. Even though governing tax codes will evolve, the plan and strategy utilized today will continue to provide the legacy to your heirs that you desired. Any new tax laws cannot effect the planning you have already completed.
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