Don't Wait for Congress – Give Yourself a Tax Cut Now

Despite the Trump administration’s current attempts at lowering taxes, it’s tough to look at our $20 trillion national debt without wondering when — and how high — rates eventually will have to rise.

Another possible path: Life insurance

A Roth conversion is a popular choice right now, but it isn’t the only option. Rather than continuing to place all or part of their nest egg into a tax-deferred account, we’ve seen some savers redirect part of their funds into an Indexed Universal Life (IUL) insurance plan. The benefits can be considerable: tax-deferred growth, no contribution limits, income tax-free distributions, no penalties for withdrawals before age 59½, non-reportable income, no RMDs and a potentially income tax-free legacy (with the death benefit).

In his book, “The New Rules of Retirement Saving: The Risks No One Is Telling You About … And How to Fix Them (opens in new tab),” Martin Ruby, a former actuary, describes in detail the strategy of converting an IRA to an IUL policy, which can significantly reduce taxes paid over many years through RMDs and the resulting taxation of the RMD money reinvested into taxable accounts. Ruby provides specific examples of how the strategy can be applied. Your adviser should be able to walk you through the pros and cons.

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There’s an old Morgan Stanley ad that says, “You must pay taxes. But there’s no law that says you gotta leave a tip.”

It’s important to remember that deferral postpones taxes, but it doesn’t eliminate them. Eventually, Uncle Sam will want his share of the money you’ve been saving — and he can change the rules for how he gets it at any time.

That’s why many investors are looking at ways to put their own tax efficiencies in place — with strategies that will last their lifetimes.

If you’re worried about the money that’s piling up in your tax-deferred retirement plan, talk to your financial adviser and a tax professional about creating a tax-efficient strategy for the future.

Kim Franke-Folstad contributed to this article.

This is provided for informational purposes only; it is not intended to provide tax or legal advice. All individuals are encouraged to seek advice from qualified professionals regarding their individual circumstances.