Taxable IRA Assets to Tax Free Life Insurance with LTC Benefits

IRAs and other qualified retirement plans are often overlooked when high net worth clients begin to consider how to utilize their various investments for future income. Instead, they see these IRAs as a method to maximize the wealth that they can transfer to their heirs. What they may not realize however is IRA’s and various other retirement plans can be subject to double taxation upon the death of the owner. Probably one of the best ways to avoid this loss of wealth would be to reposition the assets inside a profit sharing plan which will minimize the tax burden and in doing so, help maximize the wealth passed down to their heirs.


Consider the following strategy when reviewing taxable IRA assets:

  1. A client has an profit sharing plan that already exists.
  2. The client converts the IRA assets into the profit sharing plan (assuming the insured meets the requirements to be able to do this).
  3. The client purchases a life insurance policy inside of the established profit sharing plan.
  4. The client pays the economic benefit annually
  5. The profit sharing plan has ability to transfer the death benefit to his/her heirs tax free.
  6. The life insurance policy that is purchased has a pre-payment rider for Long Term Care (LTC) benefits, which can be distributed tax free to pay for home health care (hhc) or nursing home benefits.