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Benefits of the Roth IRA: In 1997 Congress passed the Taxpayer Relief Act. One of it's major provisions was the Roth IRA (named for the Senator who initiated the bill). This was passed as a way to encourage people to save further for their own retirement.
To assist in this, Congress came up with a great way to allow people more control over when they pay their taxes (and how much, in this case)—The Roth IRA. There are BIG advantages, especially when it comes to rolling over already established 401ks or traditional IRAs: |
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Tax-Free on the withdrawal: A Roth IRA is different from a traditional IRA (or 401k) because you aren't allowed to deduct the contribution initially on your tax return in that year, so you have to pay for the Roth IRA with after-tax dollars. BUT, it grows tax deferred AND all of the growth is Tax Free on the back end.
The potential benefit of this is vital because the only real way to control taxes in the future is to not be subject to them. The Tax-Free distribution of the Roth IRA is one of only two sources of retirement income that is NOT taxed on the withdrawal (cash value life insurance is the other). |
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There are other lesser known, but very important, advantages of the Roth IRA: |
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Taxes on Social Security Income: Withdrawals from your Roth IRA are not included in the overall income calculation which determines how much your Social Security income will be taxed. |
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Leaving a Legacy: If you pass on all or a portion of your Roth IRA to your children, your heirs will continue to enjoy Tax Free withdrawals. Also, their Required Minimum Distributions are lower, thus leaving more money invested over the rest of their projected life spans. This could also apply to grandchildren. |
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Another Emergency Fund: The Roth IRA could be used as a special Emergency Fund. This means you can build a Tax-Free fund that you could use for additional medical expenses, long term care expenses, a new roof, or anything you may need providing you are over the age of 59 1/2 (so there is no penaly for early withdrawals). If you have other sources of retirement income and don't have to dip into this Emergency Fund, then it could be passed onto your children on a tax-free basis. |
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Fixed Indexed Annuities:
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This is when Zero is your Hero, and you will be very glad you did not have to take that negative hit. Your prior principal and gains are preserved; they do not fall. This is a double advantage, because you don't spend time and money in future years recovering from that downturn, and you start right back up again in the up years. |
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Annuities (or mutual funds) can be used as the funding vehicle for retirement programs, including the Roth IRA or Traditional IRA. |
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If it is set up as a Roth IRA, then it will be tax-free on the back end, and no Required Minimum Distributionswill apply, even after the age of 70 1/2, thus leaving the proceeds to grow and accumulate. This is a way to leave a substantial legacy for kids and grandkids because they can keep the account active while only being required to take the Required Minimum Distribuion (RMD) at their younger ages, thus leaving most of the money continuing to grow tax deferred, and then tax-free on the back end, if it is labeled as a Roth IRA. |
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Concept: Laddering Annuities—Many people have heard of the concept of "Laddering CDs". It is also possible to "ladder" annuity contracts, which have the potential to very efficiently build a lifetime income. If initial deposts are large enough, there is the potential for rebuilding the initial deposit by the time you are ready to start spending the last "laddered" contract. Call Libby at 206-938-8721 to determine how this might work for you. |
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Single Premium Life: Another great strategy for Diversification is Single Premium Life. This is a special type of life insurance policy designed to take a single lump sum, placed in a specific type of policy (with very generous underwiriting), which has the following features: |
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A 10% Bonus on the premium deposit is credited to the cash value right up front. It can then be allocated between a Fixed Rate Account, or to several indexed accounts tied to the market. You can redistribute those choices annually on the anniversary date of the policy. |
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A death benefit is created, several times the multiple of the deposit, that can be used by beneficiaries or by the insured if they find they have a chronic illness and cannot do 2 out of 6 activites of daily living, or are diagnosed with a terminal illness. The death benefit can then be used by the insured/owner with a residual amount of death benefit still being available for the beneficiaries. |
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The premium deposit is always guaranteed and if the owner ever wants to cancel the policy, a full return of the original deposit would be done. |
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General Life Insurance: When we think of Life Insurance, we generally think of protecting the family from financial disaster in case the primary breadwinner dies (which can often be either the mother or the father, or both). This need does not necessarily ever diminish, depending on your specific family needs. |
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Term Life Insurance: All insurance premiums are driven by one's age, health, and the amount of death benefit you want to provide to the beneficiaries. Term insurance can be very inexpensive. It also has the additional advantage of being able to be used by yourself, the owner/insured, in case of terminal illness. Also, term insurance can often be converted (generally up to the age of 60) into a cash value policy without having to show insurability, regardless of your health status. |
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Cash Value Insurance Strategies: As life insurance contracts become more flexible, they can be used in a wide variety of ways to significantly enhance one's overall financial portfolio. Cash value life insurance can be used as a powerful tool to leverage your overall financial position in a variety of ways: |
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It can be a source of additional retirement income (while still having a death benefit) that grows on a tax-deferred basis, and can later be used tax-free, all the while still providing a death benefit. |
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It can be used to equalize an estate between heirs, or to pay off future estate taxes. |
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Cash Value Insurance can be borrowed (be your own "bank") and paid back with interest, so you can minimize the need for outside lenders. |
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Life insurance given to a child can be very inexpensive (based on their age), which can later be used to fund their college education, and later on contribute handsomely to their retirement. What a gift for a child or grandchild! This is possible because the Ownership (who controls the policy and pays the premiums) can later be changed to the "child" when they have grown up. |
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All kinds of interesting legacy planning ideas can be constructed by the creative use of life insurance. You can have multiple beneficiaries, including not only people, but also organizations you may want to help with a bequest. |
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Potentially Lapsing Policies: It is very important to get an "inforce" policy illistration and to understand how your policy is doing. It could terminate if crediting rates have not kept pace with the cost of the insurance. With these challenging economic conditions, many carriers' investment portfolios have taken a hit and may no longer be paying the higher crediting rates they once were to the policy's cash values
Knowing how your policy is performing is critical so you have the chance to make corrections, thus keeping the policy alive. At Carr Financial Advocates we facilitate this process by getting you an inforce illustration and work with an independent CPA firm to analyze the illustration and determine various courses of action that could save the policy or even enhance your death benefit without raising premiums. In some cases it could reduce the premiums for the same coverage. Because of new actuarial tables now being applied on all life insurance policies, even term rates can often be adjusted in favor of the client. |
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Review Beneficiary Designations: This is often overlooked and can be crucial to carrying out what you as the policy owner (and often the insured) really want to have happen; especially in the most tax-advantaged manner. Since beneficiary designations on both life insurance contracts and annuity contracts take precedent over what is in your will, it is critical that these designations are kept up to date and are what you currently desire. It is also crucial that benefits are taken in the most tax-advantaged way, because to do otherwise can be irreversible with the IRS, and this can make a huge difference in the ultimate tax bill (or benefit) to the beneficiary. |
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Life Insurance vs. Annuities??: This is a great area of discussion, and the answer all depends upon each individual case with that person's particular set of circumstances and goals to be accomplished. In either case, these are contracts between an individual and a life insurance company that provides leverage to your money and guarantees for paying off in the long run. Each type of contract is individually tailored (within certain overall parameters) to fit the needs of each person, and ideally, people often have both types of contracts to maximize family protection and to maximize and leverage their assets. |
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Disability Insurance and Long Term Care Insurance: These are two very important areas of protection, depending upon your personal circumstances and assets, or if you own a business, where others are depending upon you. See the Disability (click here) and Long Term Care (click here) sections of this website for more information, call Libby Carr at 206938-8721 for your personal appointment, or email libby@carrbiz.com. |
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