Category: Advanced Markets

Stretch IRA’s, to do or not to do?

    Stretch IRA’s certainly sound like a great idea. You can use them to spread large tax liabilities out over a beneficiaries’ lifetime, saving tons on income taxes. But consider the actual case of Dr. Smith… Dr. Smith had a very large family. At the time of our meeting he had 20 grandchildren whom he planned to name as beneficiaries on his IRA. Dr. Smith accumulated $3 million in his IRA and wanted to force his beneficiaries to receive payment of the proceeds over their lifetime. So, he hired an attorney who prepared the necessary trust documents required to divide his assets into separate shares. By doing this, distribution payments would be spread out in order to reduce tax liability. This strategy sounded really solid, until we made some RMD calculations… Each share in the IRA was worth $150,000. Using Number Cruncher we showed Dr. Smith the VERY small distributions that would actually be made to his grandchildren. Then we started asking questions about how he wanted to be remembered. Did he want to help provide for college? A distribution of $2,300 might not do an 18 year old much good if they needed help paying for college, where four year tuition costs at a public school often exceed $100,000. If Dr. Smith were to allow the IRA to be cashed in, after taxes his beneficiary could have...

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Manulife Considering Separating from John Hancock

Is this a trend? MetLife has already sold its captive distribution; the Premier Client Group to Mass Mutual. It is ready to spin off its manufacturing and wholesale distribution of life and annuities in the form of Brighthouse Financial. AXA announced plans to execute a similar strategy in the US with its life and annuity manufacturing. Now there are rumors that Manulife is considering the same with John Hancock. What do they have in common? All three carriers sold lots of lifetime guaranteed UL and variable annuities with guaranteed minimum income riders. It should not be a surprise that stock Analysts don’t like the tail risk these products have. Stockholders need analysts to have a favorable opinion of their stock long term. Does anyone know a carrier actively shopping for books of GAUL and VA’s with rich GMIB’s?? Hardly. Who wants to buy into an IPO that consists of portfolios of products the company itself no longer wants on the books? What is the solution? A spin off. My bet is if John Hancock is separated from Manulife it will be a spin off.   Is this good for the industry and consumers? I don’t know. What I do know is we need positive industry news and higher interest rates. That will be good for everyone in our industry. More from   Michael E. Kepesky, JD CFP CLU...

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Announcing The ASA Group Series on Developing Centers of Influence

There is a simple question which can lead to an opportunity to become a huge value add for your CPA’s resources; “Are you filing Form 8925’s for your business clients who own life insurance?” The ASA Group has been approved as a registered sponsor on the CPE State Roster for Arkansas! Currently we are prepared to deliver two courses: IS YOUR EMPLOYER OWNED LIFE INSURANCE TAXABLE? §101(j) COMPLIANCE COSTLY MISTAKES IN LIFE INSURANCE PLANNING, PROTECTING THE BENEFITS OF §101 AND §72 Each course has been approved for live delivery for one (1) hour of CPE. For more information contact Michael Kepesky at Michael E. Kepesky, JD CFP CLU ChFC Director of Advanced Markets The ASA Group AR State License # 1665547 11807 Hinson Road, Little Rock, AR...

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Managing Sequence of Return Risk with FIA’s

Clients who have market based investments should consider diversifying their retirement portfolio with a sleeve that is not completely correlated to market fluctuations. IUL insurance fills that order, although some advisors might argue that Whole Life insurance works better. A product that is positively correlated to market upswings and negatively correlated to market downswings would be the best choice. Today many carriers are marketing life insurance strategies which manage Sequence of Return Risk and if your client has 10-30 years before retirement this is a very good choice because of the tax favored nature of withdrawals. But what if your client is uninsurable or rated? What if they are already nearing retirement? Could a Fixed Indexed Annuity (FIA) work? My answer is YES and it doesn’t require an added income rider. First, let’s take a look at the market. One of my favorite 3rd party resources is the JP Morgan Guide to Markets. This resource is updated quarterly, so I advise you reference the link each time rather than saving to your computer.   3Q 2017, US JP Morgan Guide to Markets; Slide 4                                   Bull Market                                        Correction   1997-2000            +106%                     2000-2003            -49%   2003-2008            +101%                     2008-2009            -57%   2009-2017            +258%                                                     TBD Clearly these performance statistics indicate that adding non-correlated rates of return to a portfolio may be a sound strategy. Sequence of Return Risk is not an...

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“IRC Sec. 1035 Exchanges With “Boot”

Any withdrawal, loan payoff or loan origination in a life policy in combination with an IRC Sec. 1035 exchange can be considered a “Boot” transaction and can cause unintended income tax consequences. For this post we will focus on policies with exiting loans. Extra precautions must be taken if you plan on using policy values to reduce the amount of a loan before or after the transaction.  Tax Facts Online provides an explanation of boot: “ If a policy loan is outstanding at the time of an IRC Section 1035 tax-free exchange, the amount of the net reduction, if any, in the taxpayer’s outstanding loan will be considered “boot”. To the extent there is gain in the policy the boot must be recognized as income. A common strategy to avoid a boot transaction is to reduce the loan an appropriate amount of time before or after the exchange so they do not appear to be connected. Section #5 of a report recently issued by The Association for Advanced Underwriting also provides a great explanation of what boot is and how to avoid a taxable boot transaction. Don’t lose a sale by being told you have to wait months or even a year to execute an IRC Sec. 1035 exchange. Please feel free to contact me any time. I am available to consult with your tax and legal advisors before...

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