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 really devastate the account.
We arranged to meet and as we looked at his situation it was clear that, unlike many people today, income was not going to 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 was leaving me this information to review he was going through his legal and financial papers and he made a comment about the rising costs of the Long-Term Care coverage. He purchased the policy from a  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 been increasing over the years I suggested that I might have a solution for him that would solve both problems for him. We could possibly 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 entirely 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 and 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 as well as for other assets that were subject to RMDs as well- so it would help to preserve those assets as well. At the same time, it would eliminate the expense of the premiums he was paying for Long Term Care that were over $5,500 at that time 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 5 years coverage that he had right now. All of this could be accomplished with no fees or premiums to pay, and with a return of his principal to him at any time with no surrender fees if he changed his mind later on 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 true, but in fact 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, or 401Ks, or brokerage accounts outside of their qualified accounts.
Solving for RMD concerns, wealth transfer, or income needs is always done on a case by case basis as everyone’s circumstances are unique to them. 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 clients’ needs with solutions that others may not be even aware exist.
