Preserve a Legacy
It's your legacy. Make every dollar count.
How Capital Transfer Works
Not all assets are taxed the same way. Some are great vehicles for accumulating wealth, but others—like capital transfer—are better for passing wealth to your beneficiaries.
The name says it all—'capital transfer' involves transferring capital from one asset to another. When it comes to retirement, a capital transfer strategy lets you transfer retirement dollars from one of your current accounts1 to a more tax-efficient asset like a life insurance policy—which provides an income tax-free death benefit.
Taxes can dramatically shrink your legacy. But a capital transfer strategy can help minimize taxation and maximize the assets you leave behind.
Is Capital Transfer for Everyone?
Capital transfer may work best for people who:
- Have reached retirement age;
- Live comfortably on other retirement income;
- Do not need additional income; and
- Have designated certain assets for family members or charities.
Capital Transfer Addresses Retirement Plan Taxes
Traditional IRAs and qualified retirement plans—401(k)s, profit sharing plans, etc.—are very efficient accumulation vehicles for retirement. Untaxed dollars are used to fund the plan, and income taxes are deferred as long as the funds remain in the plan.
But, these retirement plans become inefficient when funds are distributed at retirement. And at death, funds in these plans may be subject to double taxation—both income and transfer taxes. If you die with money in a qualified plan, income tax may be taken out when funds are distributed to beneficiaries. And if your estate is large enough, transfer taxes—like federal estate and state inheritance taxes—may also come into play.
A Potential Solution: Capital Transfer
If you want to preserve the hard-earned assets from your traditional IRA or 401(k) to pass on to your beneficiaries, you need a strategy to help maximize their value and minimize the effects of taxation. Capital transfer strategies make preserving your assets—and your legacy—possible by turning traditional IRAs and other qualified retirement plans into an asset that is more tax-efficient—a life insurance policy that passes income tax-free to your beneficiaries.
Capital Transfer Preserves Required Minimum Distributions
Income and transfer taxes are not all you should be concerned with when it comes to retirement plans: after you reach age 70 1/2, annual distributions must also be taken from traditional IRAs and most qualified retirement plans. So, whether you actually need these distributions or not, the IRS requires that you take part of the account each year anyway. This is called a required minimum distribution or RMD.
If you don't take a required minimum distribution, it means your distribution assets will be taxed again. This time a whopping 50 percent penalty tax is taken from any amount you were required to withdraw, but didn't.
So with RMDs, you may not need the money right away—but you're required to take the distribution specified by the IRS and pay current income taxes on it. If you don't take the distribution, you'll pay an even more punitive tax penalty.
A Potential Solution: Capital Transfer
There is a way to use the required minimum distribution to help maximize the inheritance you leave to beneficiaries. Capital transfer lets you place retirement funds in one of the most tax-efficient vehicles for transferring assets—a life insurance policy. By using the after-tax amount of your RMD to purchase life insurance, you help maximize your legacy and avoid transfer taxes. Properly designed and funded, life insurance passes tax-free to beneficiaries—helping preserve the legacy you intended for them to enjoy.
As you can see, taxes may dramatically shrink your legacy. Whether you want to leave assets to your children and grandchildren, or support your church or a charitable organization, capital transfer helps increase the legacy and can help stop the drain on your retirement assets.