I was contacted several years ago by a gentleman named Jack who had a concern about his IRA account that he wished to leave to his daughter. Fortunately for Jack, he did not need this money for income for himself and his wife.
He was concerned about the account deteriorating over the years due to Required Minimum Distributions (RMDS) that he had to take every year, as well as the risk of a market correction that could devastate the account.
We arranged to meet, and as we looked at his situation, it was clear that, unlike many people today, income would not be a concern for him. But upon reviewing his IRA, I discovered the situation was worse than he had described over the phone. His money was at market risk- but even worse- it was at market risk in a Variable Annuity! (variable annuities are securities and subject to fees, expenses, market risk, and gain)
Being very familiar with these products, I offered to do a free analysis for him on all the fees hidden inside this product- and there were many. As he left me this information to review, he reviewed his legal and financial papers and commented on the rising costs of Long-Term Care coverage. He purchased the policy from an Â well-known and highly rated company in that industry.
As I reviewed the policy, I saw what he was paying and how his premiums had increased over the years. I suggested I might have a solution for him that would solve both problems. We could preserve his principal from market risk, eliminate all those fees in the annuity, have RMDs satisfied, and have the account value pass on to his daughter tax-free for a much higher amount than what was currently in the account! Plus, at the same time, eliminate the cost of LTC coverage while giving him even better Long-Term Care protection!
Of course, he was a little skeptical about this, but he agreed to let me run the proposals, and we set a follow-up appointment.
This is the solution that I came up with for him. I suggested that we move his money into an A+ rated company that would protect his principal as there would be no market risk. It would convert his $345,000 taxable at-death variable annuity into a tax-free death benefit of well over $400,000.
This would also satisfy his RMDs on the funds used here and for other assets that were subject to RMDs, so it would help to preserve those assets as well. At the same time, it would eliminate the expense of his premiums for Long Term Care, which was over $5,500 and rising.
He would now have over $8,200 a year of Long Term Care Coverage instead of the $6,600 a year that he currently had- and he could extend that to lifetime payments instead of the five-year coverage he had right now. All of this could be accomplished with no fees or premiums to pay and with a return of his principal at any time with no surrender fees if he changed his mind and wanted that money for other purposes!
This was an ideal resolution for him on all counts, and we were able to get this all in place and give him the peace of mind knowing that he was fully covered if he needed Long Term Care, but he didn’t have to pay for it if he never needed it. Also, at the same time, he could convert his IRA account to a non-taxable account for transfer to his daughter if he never needed it. On top of that, he could access those funds at any time with no penalties if something came up and he needed or wanted those funds for some other reason.
This seemed too good to be accurate, but it was true. This level of planning is available to most people.
This is just one example of how we can work with our clients at Safe Money and Income Solutions to find solutions to protect their assets, whether in IRAs, 401Ks, or brokerage accounts outside of their qualified funds.
Solving for RMD concerns, wealth transfer, or income needs is always done on a case-by-case basis, as everyone’s circumstances are unique. There is never one solution that fits all situations.
But fortunately, being independent and thus having access to so many options allows me to do the research and come up with the right choices that satisfy our client’s needs with solutions that others may not even be aware exist.