You've worked hard to fund your 401(k) or IRA. You paid attention when financial experts told you to put as much money as possible into your retirement plan. You did, and decades later, you're about to reap the rewards with a secure retirement.

Now you're looking ahead, and realizing there will be money left over in that retirement account. It should be easy to just leave it all to your children, right?

Wrong. Qualified retirement plans such as traditional IRAs or 401(k)s represent a big tax burden for your heirs. They can be taxed twice when they inherit that money:

  1. IRD taxes. This stands for "income tax in respect of a decedent." Since your account is filled with pre-tax dollars, whoever withdraws the money (your heirs) will have to pay the income tax.
  2. Estate taxes. The value of the 401(k) or IRA you leave behind will be added to the total value of your estate. If it tips the scales over the government's estate tax threshold ($5.6 million as of 2018), your kids will also have to pay estate tax just to inherit your estate.This double tax burden can whittle their inheritance down by as much as 70%. Is there a way you can pass that money to your children without such a big tax burden?

The Solution: Qualified Plan Maximization

Instead of leaving your money in the qualified plan, you can pull it out and use it to buy life insurance. This is a much more efficient way to pass your wealth to the next generation. You pay tax on the money when you withdraw it, which removes the income tax burden. Then, when you pass away, your heirs receive a 100% tax-free death benefit.

Reducing or Eliminating Estate Tax

There's even a way to keep the life insurance death benefit from counting toward the overall value of your estate for the purposes of estate tax. We can help you create a properly drafted life insurance trust (ILIT) that will be the purchaser and "owner" of your policy. Because you don't own it, its value cannot be counted as part of your estate. If you could put your children on the road to financial success with money you already have, wouldn't you do it? All it takes is a phone call to get started.

To turn your qualified retirement plan into a legacy, call me or email me today.


Always consult your accounting, legal, and tax advisors before implementing any recommendations. This material does not constitute tax, legal, or accounting advice. It cannot be used for the purpose of avoiding any IRS penalty.