Is life insurance a part of your retirement plan? It should be.

{3:12 minutes to read} Today I want to talk about qualified plan accounts as an approach to purchasing life insurance as part of your retirement plan. Qualified plans include:

• 401(k);
• Profit-sharing;
• Money purchase; and
• Defined benefit plans.

As people get older and accumulate wealth, these qualified plan accounts could potentially represent a very attractive way for an individual to purchase life insurance.

While an IRA does not allow you to buy life insurance, qualified plan accounts have rules that allow you to pay your life insurance policy premiums with dollars from inside the account. This can be a wonderful advantage for people who are looking to buy life insurance but, at the present time, don’t necessarily have the cash flow to sustain the premiums.

Here’s how it works hypothetically: Let’s say a client has the desire to buy a $500,000 policy. At age 40, the premium might be $7,500 a year, but the client doesn’t really have the cash flow. What the client has is $180,000 inside his profit-sharing plan and a 401(k) with annual contributions of $15,000. The money that exists in the plan could potentially be utilized, along with the contributions going into the plan, to purchase the life insurance.

In essence, those pretax dollars already in the plan are not much use to the 40 year-old. They are not something he’s going to access today. However, those dollars could be used to pay the premiums on a life insurance policy. This can be a huge benefit to those looking for ways to buy life insurance without impacting their cash flow and lifestyle.

Also, as the life insurance policy starts to mature – let’s say in year 3, 4 or 5 – it might be worthwhile to consider distributing or buying the policy out of the plan when cash flow allows, for the payments to be made personally with after-tax dollars.

Lastly, as people accumulate large amounts of money in these qualified plans, they can end up with a very large income and estate tax bill at the end. Life insurance acts as a vehicle to replace the wealth lost due to the cost of those taxes.

In conclusion, using a qualified plan is a great opportunity to help purchase the life insurance a family might need without necessarily impacting their cash flow.

If you have any questions or want to learn more about this strategy, let us know. We look forward to helping you with this area of your planning.

Registered Representative offering Securities through American Portfolios Financial Services, Inc. (APFS) Member FINRA/SIPC. Investment Advisory Services are offered through G&G Planning Concepts, Inc. which is not affiliated with APFS. Strategic Wealth Advisors Network and Gassman Financial Group are not affiliated with APFS.

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