With the SECURE Act passed by Congress, there is a huge opportunity to talk to you clients about permanent life insurance.  The goal of the act was to encourage more businesses to offer a retirement plan to their employees.  However, in order to cover the costs of some of these benefits, the act also took away the Stretch IRA.  The Stretch IRA was a way for non-spousal beneficiaries to stretch out distributions over their life expectancy when inheriting an IRA/Qualified plan.  This would allow the beneficiary to maximize their lifetime distributions while minimizing taxes.  With the elimination of the Stretch IRA, non-spousal beneficiaries will now have to liquidate the account within 10 years. 

Here is an example – PRE- SECURE ACT

  • 60 year old male client has $500,00 in his IRA- assuming he takes appropriate RMDs at 70 ½ (5% growth), he would leave an account worth $663,000 at his death at age 80. 
  • Under existing stretch rules, his 45 year old daughter could take out $1.875M over 39 years (5% growth). 

Under the New SECURE ACT

  • That $663k would equate to a $458k net distribution if taken as a lump sum distribution.  His 45 year old daughter could choose to defer until year 10, but that would just most likely cause the tax bill to be that much more likely.  At 5%, that $663k would grow to $1.08M by year 10.  Now, more of the asset is taxed at the top rate of 37%

Click Here for a spreadsheet that goes over the cost of $100k of permanent insurance on different ages (STD non-tobacco)