Thursday, 21 March 2019

More life insurance coverage can help protect your IRA

Thanks to the impressive gains in the stock market over the last 10 years, many IRAs and other retirement accounts have grown substantially in value. But the bull market won’t last forever. What will happen if the market corrects or cools off?

Ed Slott, an expert on IRAs, has pointed out that life insurance is not only “the single biggest benefit in the tax code”; it is also “the most cost effective way to protect a large IRA.” (Check out Slott’s website,

Many people, once they reach 70 1/2, are forced to withdraw more money from their IRA than they wish to. These individuals should consider using the after-tax proceeds from the required minimum distributions (RMDs) to pay for life insurance premiums. After the death of the IRA owner, the life insurance proceeds can be used to pay any estate tax or other post-death expenses so the beneficiaries of the IRA will not have to.

The use of life insurance eliminates tax risk. The payment is guaranteed. For sophisticated investors who are nervous about the direction of the stock market, expanding their life insurance coverage will certainly provide some protection from investment risk.


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