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The SECURE Act (Setting Every Community Up for Retirement Enhancement) was recently signed into law in an effort to encourage more Americans to save for retirement.

While a positive step meant to bolster retirement security nationwide, the legislation is expected to present new financial possibilities – as well as additional planning needs.

Among other provisions, the act extends the Required Minimum Distribution (RMD) age from 70½ to 72, ultimately resulting in larger account values to be managed.

Proactive planning will be essential to navigate this and other changes. Belman Klein can assist your clients in multiple ways – not only at age 72, but throughout their careers as they approach retirement, when underwriting and pricing is far more favorable.

Life insurance is a tax-free benefit

Because qualified investment accounts are taxed immediately upon distribution, individuals who do not need these funds for living expenses may wish to leave these accounts to their heirs.

Previously, these “inherited funds” could be stretched over a beneficiary’s lifetime, thereby spacing out the associated income tax liability. Under the SECURE act, upcoming generations will be required to complete withdrawals within a 10-year span, causing them to bear the brunt of taxation.

By investing a client’s RMDs or the portion not needed for living expenses in life insurance, however, we can essentially convert a taxable benefit to tax-free funds, whereby increasing the net amount available to heirs.

Life insurance provides additional protections 

The usage of trusts as beneficiaries for 401Ks and IRAs is also changing, and some creditor protections previously associated with them are disappearing. By withdrawing a portion of these funds to purchase life insurance – your clients can still utilize a trust for beneficiary purposes, complete with all the requisite protections to safeguard their families.

Now is a great time to examine beneficiaries and estate structures with your clients, ensuring assets are protected and passed on consistent with their wishes.

Next Steps

Planning ahead is vital, as is finding a knowledgeable and collaborative insurance partner. Belman Klein can support you in identifying new opportunities for your clients. By doing this prior to retirement age, we can help to establish critical guardrails around their financial futures.  Although clients are losing the “Stretch IRA”, by dusting off survivorship products, we can help obviate the additional income taxes created by the new law.

The passing of the SECURE Act provides an exceptional opportunity to explore ways that insurance can both strengthen and enhance your clients’ portfolios.  Let’s set aside some time to explore the possibilities. 

This is Part One in an ongoing series of communications to guide you through the opportunities presented by the SECURE Act. Stay tuned for our next piece on the importance of survivorship life insurance to help offset an income tax liability. 

* In some instances, a Tax Advisor and/or Attorney should also be contacted for counsel. Although the information contained here is presented in good faith, it is general in nature may require additional consideration of other matters. This report is for informational purposes only.