The Elimination of RMDs using the Qualified Leverage Strategy

The strategic use of profit sharing plans in concert with Roth IRAs and Cash Value Life Insurance has the potential of re-characterizing qualified plan assets to tax free assets. These strategies are just taking a page from the playbook of the affluent. Watch the interview with retirement expert, Chris Jacob, CFP.

The taxes on qualified plan monies at age 70½ can be mitigated by using QLACs, Stretch IRAs and Qualified Charitable Distributions. The name of the game here is to lower RMDs (required minimum distributions). QLACs are Qualified Longevity Annuity Contracts that allow an individual to postpone 25% of their qualified plan monies, not to exceed $125,000, to age 85 using a deferred income annuity. By deferring qualified monies to age 70½ and age 85, you can lower your RMDs. Stretch IRAs can reduce RMDs by beneficiary reassignments, generally spousal or children, that are predicated on the younger of the two. Gifting to adult children can stretch the income over the life of the younger beneficiary, thus reducing the RMD obligation. Qualified Charitable Distributions now go direct from the IRA to the IRS-approved charity up to $100,000 a year per individual. But the Qualified Leveraged Strategy goes beyond these tactics

The strategy optimizes the use of a profit sharing plan, a non-modified endowment contract and Roth IRA conversions of qualified monies. Optimize means best use of the money. In this case, the best use of the money results in the lowest taxes paid, a part of which is the severe reduction or possible elimination of RMDs. Any Roth IRA conversion taxes are paid by policy loans from the non-modified endowment indexed universal life policy.

The financial fantasy of greatly reducing RMDs or eliminating them altogether is a delightful possibility, but it requires a financial adviser that is a retirement income expert and is very knowledgeable in tax law. Before moving forward with any of these ideas you should check with your tax consultant and insurance professional.