Life Insurance Can Protect Your IRA
If the majority of your net worth consists of IRAs and other retirement plans such as 401(k), 403(b), or 457 accounts, you are at great risk that these retirement accounts will be consumed at your death (up to 80%) by federal and state income, estate, and generation-skipping taxes, leaving about 20% for your beneficiaries.
This devastating taxation occurs when these retirement accounts must be liquidated in order to pay estate and inheritance taxes. When money is taken from these accounts, federal and state income taxes must be paid first. This means that even more must be taken from the retirement account to cover the income tax bill. Once more is taken, more federal and state income taxes are due. This vicious cycle doesn’t end until the retirement accounts are literally wiped out by taxes.
Life insurance, properly positioned in an estate plan, can serve as a solution to this problem, providing much-needed cash to pay the taxes and preserve the estate for those for whom it was intended: your children and grandchildren, not the federal and state government.