RMD 70.5 Solutions

[Justin Bilyj]

I wanted to talk more about Required Minimum Distributions at age 70.5.
Of course the solutions would be in half, one side dedicated to taking income because they need to, and the other side is taking income when they dont want to.
Now one could say, convert to a ROTH, but not everyone does this before rmd age. As a side question, is it worth to convert WHILE taking rmds?
To recap, what solutions have you or do you use to help those encountering rmds? What products do you use? (Fixed, Indexed Annuities and/or parwl, IUL, GUL, SGUL)
Thanks for any insight!

 

[Tahoe Ray]

I wanted to talk more about Required Minimum Distributions at age 70.5.
Of course the solutions would be in half, one side dedicated to taking income because they need to, and the other side is taking income when you dont want to.
Now one could say, convert to a ROTH, but not everyone does this before rmd age. As a side question, is it worth to convert WHILE taking rmds?
To recap, what solutions have you or do you use to help those encountering rmds? What products do you use? (Fixed, Indexed Annuities and/or parwl, IUL, GUL, SGUL)
Thanks for any insight!

Long conversation. This is probably the situation that I focus on the most. If you want to reach out to discuss in detail...let me know.

 

[Justin Bilyj]

These threads and sub forums are doomed if people only want to speak "off the record", it doesnt do the next guy any good, just trying to give back to the forums.
Also I should amend the initial post to include RIDERS within type of products used.
I enjoy the long posts, its why I come here, no?

 

[Tahoe Ray]

Fair enough, however broad questions like this are difficult to answer in books and articles, let alone a long post or thread.

Also, specific products tend to go out the window in generic discussions since they might not be around by the time an actual case comes up.

To answer a couple of your questions, if the client needs the RMDs, things (relative to your question) are much more simple. A conversion would be tough to justify since you would normally want to pay the tax with non-qualified dollars. If they need the RMDs, they probably don't have the resources to do this.

An annuity with a lifetime income rider (flavor of the month) may be a good fit for some of the IRA.

Things get a lot more complicated if the person does not need their RMDs. If they think that taxes are likely to increase (or that their bene will be in a high tax bracket and not need the income) and they can pay the taxes from non-qualified funds, it may make sense.

In theory, a Roth conversion might be perfect but in practice, people often don't do it.

Alternative strategies involve using the RMDs to fund GUL. This can be done two ways (that I'll highlight here):

#1 Buy enough GUL to allow for the surviving spouse to pay for the conversion, thus stopping the RMDs and allowing for a tax free stretch.

#2 Use the RMDs to fully fund a GUL (or SGUL) policy creating flexibility at the bene level (they could take the proceeds and disclaim the IRA allowing a second primary or contingent, likely younger, bene to take stretch distributions or bring some trusts into the picture).

We normally spreadsheet different scenarios to come up with recommendations. Expected rates of return, taxes (income and estate), other income sources, control, age, health, the client's financial acumen, and a number of other variables all come into play. The assumptions that are made drive the planning so you have to build in some room for error.

There is a lot more to this but this is a simplified answer. You might want to think about joining your local FPA (Financial Planning Association) if you want to focus in on more of these strategies. They have pricing for "associate" members and you might find the meeting/forum topics more specific to this type of question.

 

[Justin Bilyj]

Now thats what I was looking for, thanks for your contribution.
Now to the next question, generating prospects for this.
What age(s) would you target for any marketing efforts. Also what marketing methods lend themselves to this niche?
One of my imo's is recommending a direct mail campaign (not return mailers, call ins) for this, and just wondering if this would be a profitable roi.
Thanks Ray!

 

[Tahoe Ray]

Now thats what I was looking for, thanks for your contribution.
Now to the next question, generating prospects for this.
What age(s) would you target for any marketing efforts. Also what marketing methods lend themselves to this niche?
One of my imo's is recommending a direct mail campaign (not return mailers, call ins) for this, and just wondering if this would be a profitable roi.
Thanks Ray!

Obviously wealthy individuals but also those with significant pensions (officers in law enforcement, school administrators etc.) are good prospects. Typically 60+ but the closer to 70 the better for this concept (since it becomes "top of mind"). That being said, if you get in front of someone who is 60 and not yet thinking about the RMDs that they don't need and don't want to take, you may have an LTC or estate leverage opportunity...then they become a client and:

Working with existing clients is the low-hanging fruit.

Networking with financial advisors, planners, accountants, attorneys and presenting yourself as an authority figure as well as someone who can help mitigate the "IRA Tax Bomb" (as Ed Slott likes to call it) can help to get you in front of these people. Go to their meetings, provide value when you can, join their associations and be an active participant with these groups. They hold most of the cards when it comes to the implementation.

Just don't forget referrals. Last year I used one of the strategies from my first post in this thread with a client. Earlier this week, her neighbor contacted me and said that she wanted "the same thing that you did for X".....

Good luck.

 

[Justin Bilyj]

Financial advisors? I would figure many of them understand harvesting assets to produce income or wealth conservation.

Regarding the stretching of a roth, are there new regs or new proposing regs regarding a more accelarated payout for stretch ira beneficiaries?
Thanks again Ray,

 

[Tahoe Ray]

Financial advisors? I would figure many of them understand harvesting assets to produce income or wealth conservation.

Regarding the stretching of a roth, are there new regs or new proposing regs regarding a more accelarated payout for stretch ira beneficiaries?
Thanks again Ray,

Producing income, yes. Legacy planning, not as much.

Plenty of planners (hourly or strict AUM based, those without a b/d) don't even have an insurance license. Many financial advisors do have a life license but in my experience the majority don't actively position life insurance strategies...sure, they write some term, maybe some asset based LTC, and the occasional GUL, but often are not proactive. Those FAs that are on this forum likely talk about these topics, but most do not.

As far as the stretch "going away", it is certainly cause for concern but may open even more opportunities for us. After all, if you were planning on stretching your parent's IRA when you're in your 50s (and at your peak earnings) and now you have to take it over 5 years, the tax bite alone (for non-roth qualified accounts) would welcome a life insurance policy to help with the burden.

 

[jmarkk1]

Financial advisors? I would figure many of them understand harvesting assets to produce income or wealth conservation.



Regarding the stretching of a roth, are there new regs or new proposing regs regarding a more accelarated payout for stretch ira beneficiaries?
Thanks again Ray,

I'm not running into this...advisors are not discussing wealth conservation...at least in a way where they are going to use us to come in with life, LTC, etc to help their clients.
I've ran into advisors...none have been interested in networking because their approach doesn't work very well using market risk funds and insurance. Maybe there are some that do both...but I haven't met any. They aren't concerned about insurance as part of their clients portfolio.

 

[Justin Bilyj]

I'm not running into this...advisors are not discussing wealth conservation...at least in a way where they are going to use us to come in with life, LTC, etc to help their clients.
I've ran into advisors...none have been interested in networking because their approach doesn't work very well using market risk funds and insurance. Maybe there are some that do both...but I haven't met any. They aren't concerned about insurance as part of their clients portfolio.

I too can't conceive of a FA saying, "here, let me help you take assets and lower the aum fee I am getting".
But the flip side is the foot in the door is, "if you don't control the process of retirement planning, then there's a chance they will find a retirement planner that does investment planning to, or can refer them to another FA which could siphon off your business" classic wedge...