Inherited IRA Funding Scenario

Last week, I shared how the SECURE Act creates an opportunity for an Asset Care solution. Today, I plan to share with you an example of how this situation might prove to be beneficial to the family members inheriting IRA proceeds.

Before I get rolling, I want to remind you that this continues the qualified money conversation that Michael Florio and I had on LTC Coffee Break which broadcasts every Tuesday morning at 10 am (eastern). You can catch our most recent release and access our library of past shows at our website at LTCcoffeebreak.com.

Remember, the SECURE Act sets forth rules regarding distributions from inherited qualified plans. Simply, those monies must be distributed (and taxed) within a period of 10 years for the inheritance. Simply, the “stretch IRA” was significantly trimmed.

Remember, using Asset Care as a long term care funding solution provides not only tax free funding, but it provides guaranteed premiums and benefits that can last up to a lifetime. And, only Asset Care has a funding strategy for qualified money that is designed as part of the product.

Let’s say that Sam is the designated beneficiary of his father’s qualified plan money. His mother predeceased his father leaving Sam as the primary beneficiary. Sam’s father passed away after a couple of years receiving care at home. Fortunately, he had his affairs in order and the care services and funding worked making Sam and his wife a believer in LTC and planning.

Sam and his wife Sara are fairly young (52 & 51) and healthy. They both work, contribute to their retirement plans through their employers, and have no need for “extra” current income. Based upon what they experienced with Sam’s parents, they are both concerned about long term care.

With $250,000 from Sam’s inheritance from his fathers IRA, they repurpose those funds into Asset Care for qualified money (called annuity funded whole life). As we explained earlier, that rollover is a tax-free transaction used to fund a qualified deferred annuity which will be our funding source for the long term care strategy. Once those monies are received, OneAmerica bonuses that qualified deferred annuity 20% making the total amount to be used for funding $300,000.

Over a period of 10 years, that qualified deferred annuity will pay the Asset Care premium (for both the base life insurance policy and the continuation of benefits rider). And, in this instance provide Sam and Sarah with an unlimited duration of benefit. The tax obligation for the distributions will be spread of the 10 years without penalty as this is an inherited IRA.

So, what does this buy?

The Asset Care solution is a participating whole life survivorship (second to die) policy offering a death benefit of $397,193. This is the minimum benefits that will be paid out of the policy (for death benefit, long term care benefits, or a combination of death benefit and LTC). When LTC claims occur, the death benefit will be accelerated at a rate of 3% each month providing $11,916 of tax free long term care benefits per person until they no longer require care as they elected for lifetime benefits. And, remember, that $11,916 is per person – both Sam and Sarah could be receiving benefits simultaneously and Asset Care would pay up $11,916 per person (a combined $23,832).

(Note: this example does not include inflation which are options.)

I fully anticipate questions since this is a high-level example. If you would like to learn more about this or any other OneAmerica product or service, reach out to my internal Justin Fox at (844) 658-3725 or via email at justinfox.isp@oneamerica.com.