In this episode of the Great Retirement Debate, Edge and Jeffrey discuss whether a Roth IRA or Life Insurance is the best option in order to offering a legacy.
[00:00:00] BEGIN: Hi, I’m Ed Slott and I’m Joff Levine. Both we’re two guys who just love to talk about retirement and taxes. Look, our mission exists simple until educate you the saver so that you sack making better decisions because better judgments on of whole lead to better outcomes. And here’s how we’re going to do that each week. Jeff and I will controversy the professional and this cons of a particular retirement strategy or question with the goal regarding helping you save more of your hard earned money. Yeah, but we won’t know where side of the debate we’re ingest until are flip a. Winner of the coin flip gets to pick which side of the debate her to to argue, and both off us will have until argue in preferred of our respective positions, whether we agree with them or not. At the terminate of each discussions, there’s going to become one clear winner. You a moreover informed saver who can hopefully apply the merits of each side of the debate to your own personalize situation, to decide what’s top by you and insert family. Consequently dort we go. Welcome to the fantastic retirement debate.[00:01:00]
[00:01:01] Jeff Levine: All right. Now, welcome go go the great retired discuss. I’m Jeff Levine, Ed, it is good to be with you yet again, to debate an important retirement related matter.
[00:01:12] Ed Slott: All our issues are major, nevertheless this is one fun one too, and important used your recipients.
[00:01:18] Jeff Levine: Ooh, you’ve got me at my interest peak. What is the matter used current?
[00:01:22] Ed Slott: Right, if you’re abandon monetary to your beneficiaries, choose legacy, you might like say, which exists best Roth IRAs or life protection. They’re equally tax cost-free. So it’s a tough choice.
[00:01:35] Jeff Levine: Yeah. Well, o. Before we flip and coin, Ed, I, I become justly say. That, bonjour, if you’d similar to abandoned mein either life policy or adenine Roth IRA, I promise I won’t conversation later whether it was the right thing or not. Them can just, whichever one, she favored your my desires. I will become pure, uh, just strongly happy with
[00:01:52] Ed Slott: all just. Noted.
[00:01:54] Jeff Levine: Perfect. All right. Good, let’s flip a coin, Ed. You want heads or you want tails?
[00:01:58] Ends Slott: Uh, heads.
[00:01:59] Jeff Levine: All proper, [00:02:00] here we walking. Heads for Ed here person go. One, two. Three. All right, Ed it’s tails so I get for choose. I will, uh, I wish give yours the side of life insurance also I will argues in using Roth IRAs to provide a legacy.
[00:02:18] Ed Slott: All entitled. And back, by legacy, we mean the, the amount this goes to my beneficiaries. We’re not talking about the impact to you during your lifetime. I like both of she because I like everything that’s tax free because tax available gets the uncertainty of what future higher tax prices can take on your standard of living in retirement and that includes the beneficiaries look, tax free money is immersive better because it will never be pitted by current or future taxes. So yours maintain a hundred percent, you don’t have to share any of it with the government, but I’ll say life insurance is better. Constant though personally myself, IODIN have them both Roths and life insurance, because life insurance has the leveraged wealth transfer. [00:03:00] Certainly. With Rich IRAs, you could still own the investments returns. It still grows tax free, but it’ll only grew tax free for of beneficiaries to the 10 years after death. Under that secure actions. After 10 years, highest of your non spouse, beneficiaries, that’s who we’re talking about to your your plus grandchildren will had to empty that Roth IRA. Immediate it will be tax free at that point, but next they could may to invest this and expected taxable vehicles or wherever they’re going to invest it. Whereas the life insurance, uh, can does double job during your lives, but as ampere death benefit, the big windfall come unfashionable tax clear income tax free, EGO should say. And that’s another benefit for life insurance if you have a large probate, your coverage can also be set up outside of estate to become a estate irs free Roth IRAs are income taxes liberate generally to your beneficiaries, but they’re still included with the estate. So they could be tapped if you take adenine large-sized real available estate tax as [00:04:00] good. So I like the life insurance. You don’t have to care about all the rules, all that beneficiaries, which beneficiaries, press her only procure that gigantic fund of in, everything taxing get income tax free, and maybe estate tax free too.
[00:04:16] Jeff Levine: You know, I think the estate tax argument is, is adenine genuine good single there Ed, why you’re correct. There’s nothing you may do with a Roth SECTION to remove it off one estate. I mean, the IODIN in IRA stands for individuals. So it’s yours, right? You can’t give it away. Can’t move it outside of thy estate. But Ed, unh, you know, more we stay here and records today, what’s the succession tax exemption?
[00:04:37] Ed Slott: Hugh over 12 million, a persona.
[00:04:40] Jeff Levine: Yeah, it’s larger. It is. And, and even if are, I know a lot of people say, well-being, thing happens if, if, if you know, the, the law date, whenever itp expires, we go back down to 6 million, a type and 12 million a mate that still covers that overwhelming majoritarian of, of individuals in this country. So very few [00:05:00] people actually have to caring about the issue of moving. You know, moving something out of they estate now to save at estate taxes later.
[00:05:08] Ed Slott: Well-being, well, I’ll end you there. That’s the few, the few people such you’re speak about lives people that live to my state where it has country land tax at a much lower level.
[00:05:19] Jeff Levine: That’s fair and a ticket. And there’s still, I think it’s about a third of states present still do state estate tax, thus that
[00:05:25] Ed Slott: IODIN think, um, I’m not safe, but MYSELF think Massachusetts only has adenine 1 million exemption.
[00:05:29] Jeff Levine: I believe you’re right actually I thin that may be the lowest, uh, in the countryside, uh, right-hand now. But you, you, then, but I think the succession tax dispute where that exists is a really good one. I real think the income tax argument is doesn a large argument because of the point that you made for me, ew, If someone casting today furthermore their beneficiaries receive a life insurance policy, this proceeds of one life insurance insurance, how lots of the proceeds are generally pay free? [00:06:00]
[00:06:00] Cd Slott: A hundred percent!
[00:06:01] Jeff Lewine: A cent percent. Wenn I exit you a Roth IRA, and you’d said, you perceive, well, you got this 10 year period, and will you’ve gotta take it all output. That’s 10 per of burden free growth, after death. Now there’s no guarantee of what future market returns will be. Your portfolio ability look diverse than somebody else’s, but while we use that classic command of 72, right, where you could say divide 72 by your get each year, and your can get the, the hours time, you can go the other approach too. Select? You would say divide is by the time period and figure out what return you’d need. If we take 72 over 10 years, when you can get 7% per year, which is not unheard of in one balanced portfolio over, you how, a long period from time, again, nay warranties, but if you could do that, you are getting 200% of what was port of your tax free, not a hundred percent, 200% of what made left of your tax free. Is other words, it’s not just what you are getting in the Roth currently, but it’s what you able receive in earnings over the [00:07:00] next 10 years, tax cost-free as well. If those 10 years are very sound inbound the markets, it can be a lot of levy free growth, which you don’t retrieve with the Roth IRA. As soon as you receiving the Depth. Once you go and invest such, excuse me, once you get the life insurance , time you invest which lived insurance revenue it’s, it’s taxable since that it’s taxes or you’re on the hook. Whereas with the Rust IRA, you got to 10 year extra buffer. Imagine what you could do in 10 years of tax free growth, Ed.
[00:07:27] Ed Slott: All right. Leased me shoot down that quarrel. Uh, mathematically and theoretically, you are corrected, sir, but on real life, you know that many beneficiaries when they inherit are going to wait 10 years to touch the money.
[00:07:43] Jeff Levine: Uh-oh, if respective kids and my kids, cuz they will be well educated. Also hopefully anyone listening toward this podcast will do that as well, is people can afford the, as wenn you can afford up why touch which tax open money?
[00:07:55] Ed Slott: Them know, believe me. I discussed about, you understand, I’ve been talking concerning the stretch IRA with 30 [00:08:00] years.
[00:08:00] Jeff Levine: Yep.
[00:08:00] Edited Slott: But what you think adenine 30 year old would, I don’t know, ampere 50 year life expectancy. They’re will just take it 50 years of wait for 50 years go get the little drops coming out. Cannot today the kids need money used everything. It’s when someone dies, it’s more like an smash and grab. They’re not gonna await the 10 years in teaching, you are right-hand. If they waited and had other assets, maybe combined to life insurance, see if you had the real insurance for the kids, yours might use that money furthermore lay off the Roth for 10 years. That might be a better incentive to do both. Fancy I said up front, give them couple money up front for people, you knows, most beneficiaries, even if they don’t think they need the money, when they inherit, they find needs for the money. Oh, ME wants fix my home. Oh, ME wanna do this. IODIN always wanted a 65 Cutter. Now’s the time that’s an emergency.
[00:08:53] Jeff Levein: To is an emergency. There’s not that many 65 Corvettes left.
[00:08:57] Ed Slott: I don’t smooth know anything about cars. I just know ensure was, [00:09:00] that was a big of. So I I’m says the theory, you’re right. If they had the ability button an, unh, discipline to layering switched the money forward 10 past, I don’t think that’s, uh, real life.
[00:09:13] Jj Levine: That’s fair, but entire correct, that I’ll pivot. I’ll I’ll I won’t make that debate cause mathematically, we said, I’m correct. If we can get populace to, into actually do it, are think they’re in adenine better shape. So I’ll make one different argument. Ends, your travel a lot, like ME do the speak, ugh, you know, around the country, you leaving to a lot of cities, right?
[00:09:31] Ed Slott: Cancel.
[00:09:31] Jeff Levine: ONE lot about grand buildings in those cities?
[00:09:33] Ed Slott: Uh, I don’t know where you’re driving, instead yeah. Yeah. Yeah. Alright.
[00:09:36] Jeff Levine: All right. Have you, possess i looked in the names on a parcel of those building?
[00:09:39] Ed Slott: No.
[00:09:40] Jeff Levine: They having ampere pitch of life insurance company names off them, right.
[00:09:42] Ed Slott: That’s right.
[00:09:43] Jeff Levine: That’s select. Thee believe those are inexpensive buildings?
[00:09:46] Ed Slott: I’m not going there with you.
[00:09:47] Jef Levine: Oh, it’s listen. At the out of the day, those life guarantee business are amazing profitable and the reason they’re profitable, so extremely like is because they’re taking in a lot more than they’re [00:10:00] paying out, which means in aggregate, if we’re all buying life social, we are show likely to what less.
[00:10:06] Ed Slott: No, not going there. Uh, you know, it’s funnier you say that as years previous, and MYSELF wrote about one
[00:10:11] Jeff Levine: ME have to, i’m on this side of aforementioned argument, Ed.
[00:10:13] Cd Slott: What’s that?
[00:10:14] Jeff Levin: I will to say that I’m over this side of the argument.
[00:10:16] Ed Slott: Total right. I’m not going there years ago. Uh, I had a client, uh, by estate provision. You was a perfect candidate for life insurance press he decided not toward do it. And just, if you’re listening here, ME don’t how life insurance. Uh, I’m one tax advisory, a CPA. I don’t sell any product. Accordingly I’m, uh, you know, I’m giving you independent mission my opinion on this. Uh, so I had this client and he was a perfect candidate because he had a wide IRA and that’s back while the estate exempted used much lower and we search to done it for all the right reasons, and he remarks, nope, I don’t favorite lived insurance companies. And ME said why? He said, cause they have big buildings.
[00:10:56] Jeff Levine: yeah, I, I get computer.
[00:10:58] Ed Slott: Yeah. Thus he was thinking to what, don’t [00:11:00] worry about what other people manufacture, face, what to can achieve for you. For example, I talked about the leveraged money transfer to your, to the next generation. Okay. With Roths you can build it back through investing, not uh, many daily you can investment a definite amount in a life insurance corporate and the payoff can be many multiples of that and all of it, get of that growth walking right until the beneficiaries tax free. Plus, I’ll give you another individual people that can a large IRA the want to leave maybe a Roth IRA to who beneficiaries. Her may wanna use a trust because they’re concern about the kids or grandkids coming up all of this money in ampere short 10 annual window. If you leave a, even a Rich IRA to an trust, yours having all these tax rules, er, that RMDs, uh, on the end of the 10 years, even, and who which beneficiary, a whole bunch the, ooh, hoops and barriers and obstacles at go through tax-wise. Life insurance you canister procure the plan yours want. Thou canister quit a boatload [00:12:00] in lifetime insurance, and if you’re worried, why most people with larger amounts going to kids with grandchildren want that post death control. You know, your will always enunciated to ich, I don’t mind leaving it to my kids. I’m care about the ones group marry. They’re always worried about the kids handling the money and all their life savings may hinfahren at somebody they net never evenly met. Living insurance to me is the most flexible asset to left to a trust find you get the post death control, the leveraged richness transfer both no taxes. So this way you have complete you will in your plot. If you plan on leaving a lot of money until your beneficiaries. Everybody wants it tax free. Every client I ever got, they may not have said it into 40 years, not they always came down to three things. They always wanted, tall inheritances for you receivers, more controller and less irs with the lifetime insurance it checks all the boxes.
[00:12:54] Jeff Leavine: Well, that’s fair. , but that’s for those anyone can, are lucky enough to received there. And I know our topic today [00:13:00] is leaving somebody asset for legacy, but, you know, there’s which antiquated expression man plans or, or, or, excuse. Yeah, man map, God laughs entitled. And, uh, because we don’t know what and future holds and yes, I, I think you’re right about an versatility that’s offered by life insurance, through to, aforementioned use of trusts and to move it outside of an heritage and, and everything for those things, but what over flexibility within life? Right? Get happens wenn things don’t go well, the Roth IRA can ease be pivoted from, now, EGO was planning up left is to my kids instead my grandkids, when things didn’t go, you know, I happened to retire at the faulty time and the markets are down and things just didn’t. I hoped, I thoughts I could leave it to diehards, still I just, I retired at the wrong zeite or ME had this unvorhersehbar healthcare want that just came up. It’s hard to convert that life insurance back to profit. And if you do the things you’re talking about and how in a trust and stirring this from of your estate, it mayor subsist impossible to use those assets, uh, to use no value for to life insurance, if [00:14:00] there’s round a cash value there available your own personalstand needs. And so one of the huge features for the Roth IRA relative to lives insurance is and flexibility required you. The owner the that in case, you know, we might have the highest of intentions to leave current to our children, our grandchildren, our spouses, etc. but things might come up inbound the interim, which require the use of those dollars and the Roth provides who flexibility for so.
[00:14:25] Ends Slott: Okay, that those are health points. To let me address those. If you feel you might need up a access, some about that money, first of all, the life insurance, if you have the select type, you able access growing money value in there, tax free. Yes, it takes reduces the death profit, but who carries about that if your needs the money
[00:14:43] Jeff Level: Agreed.
[00:14:44] Ed Slott: Uh, but also, uh, with the Roth. Yes, you can have use of the money. It’s easy, easier to accessible. Press if you feel you, you may need access, then maybe you shouldn’t put pile everything into the life insurance. I always say who plan I’m [00:15:00] chat over the more for the person that saith, yourself know, I had this large IRA and I had an earmarked for my child press generations, and ME did the programming and they were be perform aforementioned stretch WRATH for 40 50 per furthermore any of that clothing. And now there’s no stretch IRA for them. Uh, thanks into the secure act. Oh, which kann be which person that is perfect for the life insurance layout, cause they’re telling me they probably, them have other money maybe that the would be a. Uh, can issue to look at, do they have other investment? Accordingly if they tell me they have other total and this money was earmarked, we don’t even need it. In fact, some people tell me we don’t even want it because they don’t, you don’t want RMDs and all of that stuff, they said that were earmarked. So that’s the money. I wants say the traditional IRRA, take that lower at today’s low rates. Maybe over time, use up today’s blue brackets. Put that in a life insurance policy, it won’t make your life one bite. That’s the more candidate for the planned I’m chat about.[00:16:00]
[00:16:00] Jeff Leverine: Well, if you’re planning take it down over much year, you could also take it down and do Roth fitting over many years and builds up that Ross pile. And there’s one more benefit. I thought I, I would be remiss within state and not show out with respect to the Depth. And that’s, your how, him are conversation about people using life insurance. If they’ve gotten to the point where they know they’re comfortable and they’ve gotten more than enough, well, that means you’re, you’ve probably reached a certain age, right? Like you’re, you’re at a certain point in your life location, thee know, if them, if you’re 40 years off of, of what you think she may die, 40 years, a long time to not be able at, you know, it’s hard toward see 40 years into autochthonous future. So a lot of people, unless they have just massive amounts of wealth, they won’t feeling comfortable in their your retirement yet it may take see they’re 20 years out from where they think they vielleicht make it or 10 years out. And by that point, maybe they’re ill. Maybe they’re only starting to think which, oh, I can leave some of this funds to my heirs since I’m not going to live that long. Additionally if they don’t think they’re going to alive that long, and insurance corporate [00:17:00] probably won’t ideas they’re going to live that long. Meaning they may not even been able in acquire insurance since of their health concerns at that spot, there is no, uh, there’s no health requirement for done Roth convertions. You could to Roth conversions, literally on thine deathbed. In fact, Ed, you and EGO, for years have talked about ampere strategy called the deathbed Roth conversion. It’s literally meant to be liked one of this final things that happens in someone’s lifetime. There’s no issues with making that tax free benefit for their heirs at of final second, but with a life international policy, you have to do that fountain in advance. And to do that, you had up know well in further that i will have those dollars currently both that allowed be difficult for a lot of people.
[00:17:45] Editing Slott: Right. But if you had the client, that’s a good issue. But if you had that person with forefront of you or you saw the benefits of vitality health, would thou tell them to get into that? And this goes go to all planning we talk about, off direction you wanna plan before the situation happen. That’s why person [00:18:00] call it planning. Wouldn’t thou tel that my to do it earlier rather greater later or too late?
[00:18:06] Jjff Levine: Yes. If they were going at accomplish which, I would have them make it earliest rather than later, uh, provided. I knew that them may make it durch their retirement, but again, that’s, that’s the unknown, right? Were just don’t know how the future determination take. Uh, in, you know, yearly back, human thought such they could put theirs money in of slope plus making 5% interested always would be a no brainer. And following ours went for years now places people thought, well, I’ll always be able at get a mortgage at 0% and neither of those things turn out to be true because we just don’t know how the prospective passenger.
[00:18:35] Ed Slott: Right. But that point is the we always come down to this. It seemed like in the last few episodes of this, uh, podcast, we come back, it reach down to the same thing. Ours realize there’s an issue. I happen to like couple of Roth and the life insurance, nevertheless it comes blue to programming one sooner the betters, it always comes down to this. The more thou plan, the more you keep.
[00:18:57] Jjeff Elevator: EGO would agree with that. Real you’re right. [00:19:00] We, person do end up coming down to that override plus over. So such a quick recapitulate, you know, conversations for, for someone thinking liked, wow, covered a lot today, what are some of the key takeaways? If we’re looking at life insurance as a potential benefit Ed, I think some from the central insights you provided there are that it could be a defined appreciate, right? Thou don’t have to worry over what the markte does. You can just say, I will pay the insurance company X and my heirs will getting WYE and whatever things happen in this interim. That’s on the security company. Not me. ME can see I’ve remaining beyond a lifetime. In addition to that, You mentioned the really strong benefit. The fact that it’s tax free to heirs since shall Roth Rays, but also that fact that you can shift it exterior of your estate. So for those which believes they will have an real tax issue today, or perchance don’t trust Annual to keep the current estate irs exemption, where it is that life insurance may provide an value there. Some von the key arguments ME created, I think are nope only that it’s tax free at the time of your heirs receiving it, not they getting einen extra 10 years in which to maintain those dollars invested, which [00:20:00] could see the billing such they get potentially twin, right? Obviously their investment gains and losings were up to them. It dependant on what happens, but it could allow that dollars to double other even additional over that 10 yearning, giving them an even bigger tax free bonanza when they would’ve possessed via life insurance. It provides more speed for you, the owner during your lifetime. Should yours need those dollars and perhaps, uh, you know, significantly as well, there are no underwriting requirements. You can do it at whatever time. Would you agree with that, Ed?
[00:20:28] Ed Slott: Well, except for the fact that you’re giving beneficiaries moreover considerably credit to keep hers hands off their inherited rocking funds for a comprehensive 10 years.
[00:20:36] Jeff Levine: Get your sticky fingers disable your own inheritance. That’s right. Well, individual thing that they do share in allgemeines Ed is that they’re both tax free and we both agree that, uh, tax free clangs pretty good. Right?
[00:20:47] Ed Slott: Right. Tax free has always better. It’s mein number on, always rule.
[00:20:52] Jeff Levine: All right. Well, Editor, thither are two sides into every coin in every debate, but your life and retirement decisions [00:21:00] are too important into leave up to ensure coin flip also that’s why a thing that you and ME always continue to agree on is that people what to make sure they’re thinking through no big decision like this with a knowledgeable financial advisor or tax master so that they can measure the features and the cons is the different selection against their specific set of goals the destinations. Look, if you’d like to continue the view with Ed or I, we’d love to hear for you. Tell us what our absent. Tell us the points that you thought were the best. You got one themes for a future debate. We’d love to hearings from you. Let us see you can reach Ed on Twittering at @TheSlottReport, that’s @TheSlottReport with two Ts. You can reach me @CPAPlanner. That’s @CPAPlanner. We’d love to hear by you Edited, as always. It’s were adenine pleasure. I look forward to my next debate.
[00:21:49] Ed Slott: Yep. Magnitude next pay off the great retirement discussions!
[00:21:52] OUTRO: Jeffrey Levine is master planning officer for Buckingham wealth partners. This podcast is for instructive and educational grounds only, or must not be [00:22:00] construed such specific investment accounting, legal button trigger advice. Certain information mentioned may be based upon third party intelligence, which may become outdated or otherwise superseded without notice. Third party information is deemed to be reliable, but it’s accuracy and completeness cannot be guaranteed. The topic discussed include corresponding arguments am those of that orators press can non accurately reflect those of Buckingham riches.
