1 Reply Latest reply on May 11, 2013 4:01 PM by JerryD

    Using Life Insurance to Pay taxes


      Does it make sense to take out an expensive life insurance policy at the age of 74 to provide 3 adult children beneficiaries with funds to pay the taxes on an estate of tiaa-cref investments worth over 1 million dollars?

        • Re: Using Life Insurance to Pay taxes
          If any of the funds are in Roth's there is no tax to them (unless our friends in Washington change that). I did extensive research on the concept of a "stretched IRA". Whereas the beneficiaries will pay taxes on distributions, the distributions can be stretched over their lifetimes as defined by the IRS which may be over age 100. If the kids have the discipline to use their lifetime payouts, they can combine it with their earned income to finance Roth's which become non-taxable to them and their beneficiaries at withdrawal. Also, the funds remain sheltered and earn tax-free until they are forced to distribute them which can, depending on how much there is, earn faster that the required distributions for quite a while.
          Be very careful that you understand who can be a beneficiary in this strategy since there is such a thing as generation skipping issues where the IRS jumps in. And there may be other issues that you need to understand.