1 00:00:00,000 --> 00:00:02,340 INTRO: Hi, I'm ed Slott and I'm Jeff Levine. 2 00:00:02,460 --> 00:00:06,090 And we're two guys who just love to talk about retirement and taxes. 3 00:00:06,120 --> 00:00:10,050 Look, our mission is simple to educate you the saver so that you can make 4 00:00:10,050 --> 00:00:14,160 better decisions because better decisions on the whole lead to better outcomes. 5 00:00:14,190 --> 00:00:16,500 And here's how we're going to do that each week. 6 00:00:16,590 --> 00:00:21,270 Jeff and I will debate the pros and the cons of a particular retirement strategy 7 00:00:21,270 --> 00:00:25,890 or topic with the goal of helping you keep more of your hard earned money. 8 00:00:26,040 --> 00:00:29,680 Yeah, but we won't know which side of the debate we're taking until we flip a. 9 00:00:30,180 --> 00:00:33,270 Winner of the coin flip gets to pick which side of the debate they want to 10 00:00:33,270 --> 00:00:37,950 argue, and both of us will have to argue in favor of our respective positions, 11 00:00:38,190 --> 00:00:40,500 whether we agree with them or not. 12 00:00:40,500 --> 00:00:43,770 At the end of each debate, there's going to be one clear winner. 13 00:00:43,980 --> 00:00:47,640 You a more informed saver who can hopefully apply the merits of 14 00:00:47,640 --> 00:00:50,790 each side of the debate to your own personal situation, to decide 15 00:00:50,790 --> 00:00:52,740 what's best for you and your family. 16 00:00:52,800 --> 00:00:53,700 So here we go. 17 00:00:53,700 --> 00:00:55,860 Welcome to the great retirement debate. 18 00:01:01,980 --> 00:01:02,429 Jeff Levine: All right. 19 00:01:02,459 --> 00:01:05,610 Well, welcome back to the great retirement debate. 20 00:01:06,179 --> 00:01:10,320 I'm Jeff Levine, Ed, it is good to be with you yet again, to debate an 21 00:01:10,320 --> 00:01:12,449 important retirement related topic. 22 00:01:12,929 --> 00:01:16,640 Ed Slott: All our issues are important, but this is a fun one too, and 23 00:01:16,645 --> 00:01:18,179 important for your beneficiaries. 24 00:01:18,330 --> 00:01:20,250 Jeff Levine: Ooh, you've got me at my interest peak. 25 00:01:20,370 --> 00:01:21,990 What is the topic for today? 26 00:01:22,565 --> 00:01:25,415 Ed Slott: Well, if you're leaving money to your beneficiaries, your 27 00:01:25,415 --> 00:01:32,075 legacy, you might wanna say, which is best Roth IRAs or life insurance. 28 00:01:32,195 --> 00:01:33,725 They're both tax free. 29 00:01:33,725 --> 00:01:35,105 So it's a tough choice. 30 00:01:35,525 --> 00:01:35,885 Jeff Levine: Yeah. 31 00:01:35,914 --> 00:01:36,605 Well, alright. 32 00:01:36,605 --> 00:01:38,975 Before we flip the coin, ed, I, I will just say. 33 00:01:39,390 --> 00:01:43,890 That, uh, if you'd like to leave me either life insurance or a Roth IRA, 34 00:01:44,280 --> 00:01:47,790 I promise I won't debate afterwards whether it was the right thing or not. 35 00:01:47,790 --> 00:01:50,610 You can just, whichever one, you prefer your heart desires. 36 00:01:50,880 --> 00:01:52,830 I will be just, uh, just very happy with 37 00:01:52,890 --> 00:01:53,250 Ed Slott: all right. 38 00:01:53,250 --> 00:01:53,760 Noted. 39 00:01:54,390 --> 00:01:54,880 Jeff Levine: Perfect. 40 00:01:55,290 --> 00:01:55,560 All right. 41 00:01:55,560 --> 00:01:56,610 Well, let's flip a coin, ed. 42 00:01:56,610 --> 00:01:58,230 You want heads or you want tails? 43 00:01:58,320 --> 00:01:59,100 Ed Slott: Uh, heads. 44 00:01:59,190 --> 00:02:00,360 Jeff Levine: All right, here we go. 45 00:02:00,360 --> 00:02:02,250 Heads for Eds here we go. 46 00:02:02,550 --> 00:02:03,800 One, two. 47 00:02:04,280 --> 00:02:04,670 Three. 48 00:02:05,420 --> 00:02:09,289 All right, Ed it's tails so I get to choose. 49 00:02:09,350 --> 00:02:15,140 I will, uh, I will give you the side of life insurance and I will argue for 50 00:02:15,140 --> 00:02:17,540 using Roth IRAs to provide a legacy. 51 00:02:18,080 --> 00:02:18,410 Ed Slott: All right. 52 00:02:18,410 --> 00:02:22,640 And again, by legacy, we mean the, the amount that goes to your beneficiaries. 53 00:02:23,075 --> 00:02:26,375 We're not talking about the impact to you during your lifetime. 54 00:02:26,645 --> 00:02:31,265 I like both of them because I like anything that's tax free because tax free 55 00:02:31,265 --> 00:02:35,435 removes the uncertainty of what future higher tax rates can do to your standard 56 00:02:35,435 --> 00:02:39,865 of living in retirement and that includes the beneficiaries look, tax free money 57 00:02:40,525 --> 00:02:45,295 is always better because it will never be eroded by current or future taxes. 58 00:02:45,295 --> 00:02:48,025 So you keep a hundred percent, you don't have to share any of 59 00:02:48,025 --> 00:02:51,325 it with the government, but I'll say life insurance is better. 60 00:02:51,355 --> 00:02:54,895 Even though personally myself, I have them both Roths and life 61 00:02:54,895 --> 00:02:59,695 insurance, because life insurance has the leveraged wealth transfer. 62 00:02:59,795 --> 00:03:00,015 Yes. 63 00:03:00,115 --> 00:03:03,265 With Roth IRAs, you could still have the investment returns. 64 00:03:03,265 --> 00:03:08,105 It still grows tax free, but it'll only grow tax free for the beneficiaries 65 00:03:08,105 --> 00:03:10,055 for the 10 years after death. 66 00:03:10,085 --> 00:03:11,345 Under the secure act. 67 00:03:11,645 --> 00:03:15,725 After 10 years, most of your non spouse, beneficiaries, that's who we're talking 68 00:03:15,725 --> 00:03:20,075 about to your children and grandchildren will have to empty that Roth IRA. 69 00:03:20,105 --> 00:03:24,155 Now it will be tax free at that point, but then they would have to invest 70 00:03:24,155 --> 00:03:27,845 it and probably taxable vehicles or wherever they're going to invest it. 71 00:03:28,144 --> 00:03:33,515 Whereas the life insurance, uh, can do double duty during your life, but as a 72 00:03:33,515 --> 00:03:40,230 death benefit, the big windfall come out tax free income tax free, I should say. 73 00:03:40,440 --> 00:03:43,820 And that's another benefit for life insurance if you have a large estate, 74 00:03:44,079 --> 00:03:48,309 life insurance can also be set up outside the estate to be a estate tax 75 00:03:48,315 --> 00:03:53,529 free Roth IRAs are income tax free generally to your beneficiaries, but 76 00:03:53,529 --> 00:03:55,809 they're still included in the estate. 77 00:03:55,809 --> 00:04:00,249 So they could be tapped if you have a large estate for estate tax as well. 78 00:04:00,339 --> 00:04:01,989 So I like the life insurance. 79 00:04:02,109 --> 00:04:06,169 You don't have to worry about all the rules, all the beneficiaries, which 80 00:04:06,174 --> 00:04:12,979 beneficiaries, and they just get this giant fund of money, all tax free income 81 00:04:12,979 --> 00:04:15,079 tax free, and maybe estate tax free too. 82 00:04:16,045 --> 00:04:18,954 Jeff Levine: You know, I think the estate tax argument is, is a really 83 00:04:18,954 --> 00:04:21,115 good one there ed, because you're right. 84 00:04:21,115 --> 00:04:25,255 There's nothing you could do with a Roth IRA to remove it from the estate. 85 00:04:25,255 --> 00:04:28,375 I mean, the I in IRA stands for individuals. 86 00:04:28,375 --> 00:04:29,245 So it's yours, right? 87 00:04:29,245 --> 00:04:30,445 You can't give it away. 88 00:04:30,655 --> 00:04:32,245 Can't move it outside of your estate. 89 00:04:32,455 --> 00:04:35,755 But ed, uh, you know, as we sit here and record today, what's 90 00:04:35,755 --> 00:04:37,114 the estate tax exemption? 91 00:04:37,765 --> 00:04:40,405 Ed Slott: Huge over 12 million, a person. 92 00:04:40,645 --> 00:04:41,634 Jeff Levine: Yeah, it's big. 93 00:04:41,694 --> 00:04:42,145 It is. 94 00:04:42,145 --> 00:04:45,325 And, and even if we, I know a lot of people say, well, what happens if, if, 95 00:04:45,325 --> 00:04:49,674 if you know, the, the law expires, if it expires, we go back down to 6 million, 96 00:04:50,034 --> 00:04:56,455 a person and 12 million a couple that still covers the overwhelming majority 97 00:04:56,934 --> 00:04:58,525 of, of individuals in this country. 98 00:04:58,525 --> 00:05:03,414 So very few people actually have to worry about the issue of moving. 99 00:05:04,015 --> 00:05:08,395 You know, moving something out of their estate now to save on estate taxes later. 100 00:05:08,400 --> 00:05:09,595 Ed Slott: Well, well, I'll stop you there. 101 00:05:09,625 --> 00:05:14,335 That's the few, the few people that you're talking about is people that 102 00:05:14,340 --> 00:05:19,015 live in my state where it has state estate tax at a much lower level. 103 00:05:19,465 --> 00:05:20,515 Jeff Levine: That's fair and a lot. 104 00:05:20,515 --> 00:05:23,575 And there's still, I think it's about a third of states today still 105 00:05:23,575 --> 00:05:24,985 have state estate tax, so that 106 00:05:25,215 --> 00:05:27,685 Ed Slott: I think, uh, I'm not sure, but I think Massachusetts 107 00:05:27,685 --> 00:05:29,575 only has a 1 million exemption. 108 00:05:29,755 --> 00:05:32,665 Jeff Levine: I think you're right actually I think that may be the lowest, 109 00:05:32,670 --> 00:05:35,725 uh, in the country, uh, right now. 110 00:05:35,905 --> 00:05:38,245 But you, you, so, but I think the estate tax argument where 111 00:05:38,275 --> 00:05:39,715 that exists is a really good one. 112 00:05:40,045 --> 00:05:44,664 I actually think the income tax argument is not a great argument because of the 113 00:05:44,664 --> 00:05:52,090 point that you made for me, uh, If someone dies today and their beneficiaries receive 114 00:05:52,510 --> 00:05:57,190 a life insurance policy, the proceeds of a life insurance policy, how much 115 00:05:57,190 --> 00:05:58,840 of the proceeds are generally tax free? 116 00:06:00,100 --> 00:06:00,970 Ed Slott: A hundred percent! 117 00:06:01,000 --> 00:06:02,050 Jeff Levine: A hundred percent. 118 00:06:02,410 --> 00:06:06,790 If I leave you a Roth IRA, and you'd said, you know, well, you 119 00:06:06,790 --> 00:06:08,920 got this 10 year period, and then you've gotta take it all out. 120 00:06:09,250 --> 00:06:14,780 That's 10 years of tax free growth, after death. 121 00:06:15,009 --> 00:06:17,859 Now there's no guarantee of what future market returns will be. 122 00:06:17,859 --> 00:06:21,249 Your portfolio might look different than somebody else's, but if we use 123 00:06:21,249 --> 00:06:28,059 that classic rule of 72, right, where you could say divide 72 by your return 124 00:06:28,059 --> 00:06:31,239 each year, and you can get the, the time period, you can go the other way too. 125 00:06:31,244 --> 00:06:31,419 Right? 126 00:06:31,419 --> 00:06:34,419 You could say divide it by the time period and figure out what return you'd need. 127 00:06:34,719 --> 00:06:40,030 If we take 72 over 10 years, if you can get 7% per year, which is not unheard 128 00:06:40,030 --> 00:06:44,379 of in a balanced portfolio over, you know, a long period of time, again, not 129 00:06:44,379 --> 00:06:49,200 guaranteed, but if you could do that, you are getting 200% of what was left 130 00:06:49,200 --> 00:06:53,330 of your tax free, not a hundred percent, 200% of what was left of your tax free. 131 00:06:53,350 --> 00:06:57,580 In other words, it's not just what you are getting in the Roth today, but 132 00:06:57,580 --> 00:07:02,740 it's what you can get in earnings over the next 10 years, tax free as well. 133 00:07:02,830 --> 00:07:05,770 If those 10 years are really good in the market, it can be 134 00:07:05,770 --> 00:07:09,580 a lot of tax free growth, which you don't get with the Roth IRA. 135 00:07:09,585 --> 00:07:10,720 As soon as you get the Roth. 136 00:07:10,955 --> 00:07:14,044 Once you go and invest those, excuse me, once you get the life insurance 137 00:07:14,315 --> 00:07:18,515 , once you invest that life insurance proceeds it's, it's taxable after that 138 00:07:18,515 --> 00:07:19,895 it's taxable and you're on the hook. 139 00:07:20,164 --> 00:07:23,794 Whereas with the Roth IRA, you get this 10 year extra buffer. 140 00:07:23,974 --> 00:07:27,005 Imagine what you could do in 10 years of tax free growth, ed. 141 00:07:27,520 --> 00:07:27,880 Ed Slott: All right. 142 00:07:27,909 --> 00:07:29,620 Let me shoot down that argument. 143 00:07:29,650 --> 00:07:35,190 Uh, mathematically and theoretically, you are correct, sir, but in real 144 00:07:35,190 --> 00:07:40,180 life, you know that many beneficiaries when they inherit are going to 145 00:07:40,180 --> 00:07:42,040 wait 10 years to touch the money. 146 00:07:43,304 --> 00:07:46,874 Jeff Levine: Uh, maybe your kids and my kids, cuz they will be well educated. 147 00:07:46,874 --> 00:07:50,624 And hopefully anyone listening to this podcast will do that as well, if 148 00:07:50,624 --> 00:07:55,184 they can afford to, because if you can afford to why touch the tax free money? 149 00:07:55,335 --> 00:07:56,234 Ed Slott: You know, believe me. 150 00:07:56,234 --> 00:07:58,275 I talked about, you know, I've been talking about the 151 00:07:58,275 --> 00:08:00,195 stretch IRA for 30 years. 152 00:08:00,200 --> 00:08:00,405 Jeff Levine: Yep. 153 00:08:00,465 --> 00:08:02,835 Ed Slott: But do you think a 30 year old would, I don't know, 154 00:08:02,835 --> 00:08:04,575 a 50 year life expectancy. 155 00:08:04,575 --> 00:08:08,815 They're gonna just take it 50 years of wait for 50 years to 156 00:08:08,815 --> 00:08:10,645 get the little drops coming out. 157 00:08:10,675 --> 00:08:13,285 No today the kids need money for everything. 158 00:08:13,285 --> 00:08:16,345 It's when somebody dies, it's more like a smash and grab. 159 00:08:16,675 --> 00:08:19,555 They're not gonna wait the 10 years in theory, you are right. 160 00:08:19,555 --> 00:08:23,905 If they waited and had other assets, maybe combined with life insurance, 161 00:08:24,175 --> 00:08:27,625 see if you had the life insurance for the kids, they could use that money 162 00:08:27,805 --> 00:08:29,905 and lay off the Roth for 10 years. 163 00:08:30,085 --> 00:08:32,555 That might be a better incentive to do both. 164 00:08:32,555 --> 00:08:36,680 Like I said up front, give them some money up front because people, you know, 165 00:08:37,399 --> 00:08:41,389 most beneficiaries, even if they don't think they need the money, when they 166 00:08:41,395 --> 00:08:44,359 inherit, they find needs for the money. 167 00:08:44,540 --> 00:08:46,700 Oh, I wanna fix my house. 168 00:08:46,704 --> 00:08:47,930 Oh, I wanna do this. 169 00:08:47,930 --> 00:08:50,389 I always wanted a 65 Corvette. 170 00:08:50,395 --> 00:08:52,819 Now's the time that's an emergency. 171 00:08:53,000 --> 00:08:54,050 Jeff Levine: It is an emergency. 172 00:08:54,050 --> 00:08:56,180 There's not that many 65 Corvettes left. 173 00:08:57,234 --> 00:08:58,974 Ed Slott: I don't even know anything about cars. 174 00:08:58,974 --> 00:09:01,015 I just know that was, that was a big one. 175 00:09:01,345 --> 00:09:03,984 So I I'm saying in theory, you're right. 176 00:09:03,984 --> 00:09:09,055 If they had the ability or the, uh, discipline to lay off the 177 00:09:09,055 --> 00:09:12,595 money for 10 years, I don't think that's, uh, real life. 178 00:09:13,494 --> 00:09:16,645 Jeff Levine: That's fair, but all right, so I'll pivot. 179 00:09:16,704 --> 00:09:19,944 I'll I'll I won't make that argument because mathematically, 180 00:09:19,944 --> 00:09:20,875 we said, I'm correct. 181 00:09:20,875 --> 00:09:24,444 If we can get people to, to actually do it, we think they're in a better shape. 182 00:09:24,444 --> 00:09:25,524 So I'll make a different argument. 183 00:09:25,944 --> 00:09:29,335 Ed, you travel a lot, like I do to speak, uh, you know, around the country, 184 00:09:29,665 --> 00:09:30,835 you go to a lot of cities, right? 185 00:09:31,194 --> 00:09:31,554 Ed Slott: Yeah. 186 00:09:31,825 --> 00:09:33,444 Jeff Levine: A lot of big buildings in those cities? 187 00:09:33,774 --> 00:09:35,454 Ed Slott: Uh, I don't know where you're going, but yeah. 188 00:09:35,460 --> 00:09:35,724 Yeah. 189 00:09:35,724 --> 00:09:35,935 Yeah. 190 00:09:36,014 --> 00:09:36,204 Alright. 191 00:09:36,224 --> 00:09:36,474 Jeff Levine: All right. 192 00:09:36,524 --> 00:09:38,935 Have you, have you looked at the names on a lot of those building? 193 00:09:39,475 --> 00:09:39,895 Ed Slott: Yep. 194 00:09:40,165 --> 00:09:42,475 Jeff Levine: They have a lot of life insurance company names on them, right. 195 00:09:42,535 --> 00:09:43,045 Ed Slott: That's right. 196 00:09:43,165 --> 00:09:43,675 Jeff Levine: That's right. 197 00:09:43,675 --> 00:09:45,954 You think those are inexpensive buildings? 198 00:09:46,380 --> 00:09:47,610 Ed Slott: I'm not going there with you. 199 00:09:47,820 --> 00:09:49,230 Jeff Levine: Oh, it's listen. 200 00:09:49,230 --> 00:09:53,040 At the end of the day, those life insurance companies are incredibly 201 00:09:53,045 --> 00:09:57,750 profitable and the reason they're profitable, so incredibly so is because 202 00:09:57,930 --> 00:10:01,230 they're taking in a lot more than they're paying out, which means in 203 00:10:01,230 --> 00:10:06,450 aggregate, if we're all buying life insurance, we are more likely to do worse. 204 00:10:06,740 --> 00:10:07,949 Ed Slott: No, not going there. 205 00:10:08,160 --> 00:10:11,569 Uh, you know, it's funny you say that because years ago, and I wrote about the 206 00:10:11,569 --> 00:10:13,490 Jeff Levine: I have to, i'm on this side of the argument, Ed. 207 00:10:13,880 --> 00:10:14,390 Ed Slott: What's that? 208 00:10:14,600 --> 00:10:16,730 Jeff Levine: I have to say that I'm on this side of the argument. 209 00:10:16,760 --> 00:10:17,030 Ed Slott: All right. 210 00:10:17,030 --> 00:10:19,160 I'm not going there years ago. 211 00:10:19,400 --> 00:10:22,550 Uh, I had a client, uh, for estate planning. 212 00:10:23,175 --> 00:10:27,615 He was a perfect candidate for life insurance and he decided not to do it. 213 00:10:27,615 --> 00:10:30,855 And just, if you're listening here, I don't sell life insurance. 214 00:10:30,915 --> 00:10:32,955 Uh, I'm a tax advisor, a CPA. 215 00:10:32,960 --> 00:10:34,185 I don't sell any product. 216 00:10:34,185 --> 00:10:38,565 So I'm, uh, you know, I'm giving you independent objective my opinion on this. 217 00:10:38,985 --> 00:10:42,375 Uh, so I had this client and he was a perfect candidate because he had 218 00:10:42,375 --> 00:10:46,125 a large IRA and that's back when the estate exemption was much lower 219 00:10:46,125 --> 00:10:50,055 and we wanted to do it for all the right reasons, and he says, nope, I 220 00:10:50,055 --> 00:10:52,145 don't like life insurance companies. 221 00:10:52,205 --> 00:10:52,985 And I said why? 222 00:10:52,985 --> 00:10:55,025 He said, cause they have big buildings. 223 00:10:56,375 --> 00:10:57,875 Jeff Levine: yeah, I, I get it. 224 00:10:58,295 --> 00:10:58,475 Ed Slott: Yeah. 225 00:10:58,475 --> 00:11:01,385 So he was thinking to say, don't worry about what other people 226 00:11:01,385 --> 00:11:03,875 make, look, what it can do for you. 227 00:11:04,055 --> 00:11:07,655 For example, I talked about the leveraged wealth transfer to 228 00:11:07,655 --> 00:11:09,185 your, to the next generation. 229 00:11:09,185 --> 00:11:09,485 Yes. 230 00:11:09,485 --> 00:11:13,805 With Roths you can build it up through investing, but uh, many times you 231 00:11:13,805 --> 00:11:18,020 can invest a certain amount in a life insurance policy and the payoff 232 00:11:18,020 --> 00:11:22,939 can be many multiples of that and all of it, all of that growth going 233 00:11:22,939 --> 00:11:25,820 right to the beneficiaries tax free. 234 00:11:25,820 --> 00:11:30,590 Plus, I'll give you another one people that have a large IRA that want to leave 235 00:11:30,590 --> 00:11:32,780 maybe a Roth IRA to the beneficiaries. 236 00:11:32,780 --> 00:11:36,680 They may wanna use a trust because they're worried about the kids or 237 00:11:37,090 --> 00:11:40,895 grandkids coming into all of that money in a short 10 year window. 238 00:11:41,315 --> 00:11:46,325 If you leave a, even a Roth IRA to a trust, you have all these tax rules, 239 00:11:46,355 --> 00:11:51,755 uh, the RMDs, uh, at the end of the 10 years, even, and who the beneficiary, 240 00:11:51,845 --> 00:11:55,835 a whole bunch of, uh, hoops and hurdles and obstacles to go through tax-wise. 241 00:11:56,135 --> 00:11:58,685 Life insurance you can get the plan you want. 242 00:11:58,685 --> 00:12:01,625 You can leave a boatload of life insurance, and if you're worried, 243 00:12:01,990 --> 00:12:05,830 because most people with larger amounts going to kids or grandkids 244 00:12:06,070 --> 00:12:07,870 want that post death control. 245 00:12:08,050 --> 00:12:11,980 You know, clients have always said to me, I don't mind leaving it to my kids. 246 00:12:12,130 --> 00:12:14,110 I'm worried about the ones they marry. 247 00:12:14,110 --> 00:12:17,500 They're always worried about the kids mishandling the money and 248 00:12:17,500 --> 00:12:20,800 all their life savings may go to somebody they net never even met. 249 00:12:21,110 --> 00:12:25,760 Life insurance to me is the most flexible asset to leave to a trust where 250 00:12:25,760 --> 00:12:30,950 you get the post death control, the leveraged wealth transfer and no taxes. 251 00:12:31,280 --> 00:12:34,520 So this way you have everything you want in your plan. 252 00:12:34,520 --> 00:12:38,000 If you plan on leaving a lot of money to your beneficiaries. 253 00:12:38,055 --> 00:12:39,675 Everybody wants it tax free. 254 00:12:39,675 --> 00:12:44,204 Every client I ever had, they may not have said it in 40 years, but they 255 00:12:44,204 --> 00:12:45,944 always came down to three things. 256 00:12:45,944 --> 00:12:49,875 They always wanted, larger inheritances for their beneficiaries, more 257 00:12:49,875 --> 00:12:54,135 control and less tax with the life insurance it checks all the boxes. 258 00:12:54,435 --> 00:12:55,305 Jeff Levine: Well, that's fair. 259 00:12:55,875 --> 00:12:58,630 , but that's for those who are, are lucky enough to get there. 260 00:12:58,630 --> 00:13:03,819 And I know our topic today is leaving an asset for legacy, but, 261 00:13:04,030 --> 00:13:07,449 you know, there's that old expression man plans or, or, or, sorry. 262 00:13:07,455 --> 00:13:09,340 Yeah, man plans, God laughs right. 263 00:13:09,340 --> 00:13:13,780 And, uh, because we don't know what the future holds and yes, I, I think you're 264 00:13:13,785 --> 00:13:17,500 right about the flexibility that's offered by life insurance, through the, the use 265 00:13:17,500 --> 00:13:20,540 of trusts and to move it outside of an estate and, and all of those things, 266 00:13:20,540 --> 00:13:23,709 but what about flexibility during life? 267 00:13:24,189 --> 00:13:24,369 Right? 268 00:13:24,369 --> 00:13:28,959 What happens if things don't go well, the Roth IRA can easily be pivoted 269 00:13:28,959 --> 00:13:32,439 from, well, I was planning to leave this to my kids or my grandkids, but 270 00:13:32,439 --> 00:13:35,920 things didn't go, you know, I happened to retire at the wrong time and the 271 00:13:35,920 --> 00:13:37,930 markets are down and things just didn't. 272 00:13:37,930 --> 00:13:41,589 I hoped, I thought I could leave it to them, but I just, I retired at the 273 00:13:41,594 --> 00:13:46,060 wrong time or I had this unexpected healthcare need that just came up. 274 00:13:46,339 --> 00:13:50,114 It's hard to convert that life insurance back to income. 275 00:13:50,114 --> 00:13:52,814 And if you do the things you're talking about and putting in a trust 276 00:13:52,814 --> 00:13:57,435 and moving it out of your estate, it may be impossible to use those assets, 277 00:13:57,645 --> 00:14:01,185 uh, to use any value in the life insurance, if there's even a cash value 278 00:14:01,185 --> 00:14:03,584 there for your own personal needs. 279 00:14:03,675 --> 00:14:07,275 And so one of the biggest benefits of the Roth IRA relative to life 280 00:14:07,275 --> 00:14:09,915 insurance is the flexibility for you. 281 00:14:09,915 --> 00:14:13,964 The owner of that in case, you know, we might have the best of intentions 282 00:14:13,964 --> 00:14:17,300 to leave assets to our children, our grandchildren, our spouses, etc. 283 00:14:17,300 --> 00:14:20,460 but things might come up in the interim, which require the use 284 00:14:20,460 --> 00:14:24,600 of those dollars and the Roth provides the flexibility for that. 285 00:14:25,090 --> 00:14:26,829 Ed Slott: Okay, that those are good points. 286 00:14:26,829 --> 00:14:28,629 So let me address those. 287 00:14:28,689 --> 00:14:32,079 If you feel you might need to a access, some of that money, first 288 00:14:32,079 --> 00:14:36,069 of all, the life insurance, if you have the right type, you could access 289 00:14:36,279 --> 00:14:38,739 growing cash value in there, tax free. 290 00:14:38,739 --> 00:14:43,679 Yes, it does reduce the death benefit, but who cares about that if you need the money 291 00:14:43,919 --> 00:14:44,219 Jeff Levine: Agreed. 292 00:14:44,549 --> 00:14:47,729 Ed Slott: Uh, but also, uh, with the Roth. 293 00:14:48,324 --> 00:14:50,064 Yes, you can have use of the money. 294 00:14:50,064 --> 00:14:52,045 It's easy, easier to access. 295 00:14:52,224 --> 00:14:55,944 And if you feel you, you may need access, then maybe you shouldn't put 296 00:14:55,944 --> 00:14:58,555 pile everything into the life insurance. 297 00:14:58,555 --> 00:15:02,754 I always say the plan I'm talking about is more for the person that says, 298 00:15:02,964 --> 00:15:07,819 you know, I had this large IRA and I had an earmarked for my children and 299 00:15:07,819 --> 00:15:12,199 grandchildren, and I did the planning and they were gonna do the stretch IRA 300 00:15:12,199 --> 00:15:14,719 for 40 50 years and all of that stuff. 301 00:15:15,139 --> 00:15:18,109 And now there's no stretch IRA for them. 302 00:15:18,139 --> 00:15:19,849 Uh, thanks to the secure act. 303 00:15:20,269 --> 00:15:23,869 Uh, that might be the person that is perfect for the life insurance 304 00:15:23,869 --> 00:15:26,299 plan, cause they're telling me they probably, they have other 305 00:15:26,299 --> 00:15:28,399 assets maybe that that would be a. 306 00:15:28,894 --> 00:15:32,794 Uh, an issue to look at, do they have other assets? 307 00:15:32,944 --> 00:15:36,304 So if they tell me they have other assets and this money was 308 00:15:36,364 --> 00:15:38,044 earmarked, we don't even need it. 309 00:15:38,134 --> 00:15:41,734 In fact, some people tell me we don't even want it because they don't, 310 00:15:41,734 --> 00:15:45,334 they don't want RMDs and all of that stuff, they said that was earmarked. 311 00:15:45,334 --> 00:15:46,264 So that's the money. 312 00:15:46,264 --> 00:15:49,924 I would say the traditional IRA, take that down at today's low rates. 313 00:15:49,924 --> 00:15:52,384 Maybe over time, use up today's low brackets. 314 00:15:52,739 --> 00:15:56,399 Put that in a life insurance policy, it won't change your life one bit. 315 00:15:56,669 --> 00:15:59,749 That's the better candidate for the plan I'm talking about. 316 00:16:00,109 --> 00:16:02,744 Jeff Levine: Well, if you're gonna take it down over many years, you could also 317 00:16:02,744 --> 00:16:06,524 take it down and do Roth conversions over many years and build up that Roth pile. 318 00:16:06,524 --> 00:16:07,784 And there's one more benefit. 319 00:16:08,024 --> 00:16:12,344 I think I, I would be remiss in state and not pointing out with respect to the Roth. 320 00:16:12,344 --> 00:16:15,374 And that's, you know, you are talking about people using life insurance. 321 00:16:15,379 --> 00:16:17,594 If they've gotten to the point where they know they're comfortable and 322 00:16:17,594 --> 00:16:20,924 they've got more than enough, well, that means you're, you've probably 323 00:16:20,929 --> 00:16:22,784 reached a certain age, right? 324 00:16:22,789 --> 00:16:26,369 Like you're, you're at a certain point in your life where, you know, if you, 325 00:16:26,369 --> 00:16:31,290 if you're 40 years out of, of where you think you may die, 40 years, a long 326 00:16:31,290 --> 00:16:35,310 time to not be able to, you know, it's hard to see 40 years into your future. 327 00:16:35,310 --> 00:16:39,329 So a lot of people, unless they have just massive amounts of wealth, they 328 00:16:39,329 --> 00:16:43,899 won't feel comfortable in their own retirement yet it may take until they're 329 00:16:44,114 --> 00:16:47,954 20 years out from where they think they might make it or 10 years out. 330 00:16:48,224 --> 00:16:50,504 And by that point, maybe they're ill. 331 00:16:50,535 --> 00:16:53,114 Maybe they're only starting to think that, oh, I can leave some 332 00:16:53,114 --> 00:16:55,964 of this money to my heirs because I'm not going to live that long. 333 00:16:56,204 --> 00:16:59,594 And if they don't think they're going to live that long, the insurance 334 00:16:59,594 --> 00:17:01,964 company probably won't think they're going to live that long. 335 00:17:01,964 --> 00:17:06,095 Meaning they may not even be able to get insurance because of their 336 00:17:06,095 --> 00:17:10,044 health concerns at that point, there is no, uh, there's no health 337 00:17:10,044 --> 00:17:12,714 requirement for doing Roth conversions. 338 00:17:12,924 --> 00:17:15,714 You could do Roth conversions, literally on your deathbed. 339 00:17:15,714 --> 00:17:19,014 In fact, Ed, you and I, for years have talked about a strategy called 340 00:17:19,194 --> 00:17:20,874 the deathbed Roth conversion. 341 00:17:20,874 --> 00:17:23,634 It's literally meant to be like one of the final things that 342 00:17:23,634 --> 00:17:25,554 happens in someone's lifetime. 343 00:17:25,704 --> 00:17:31,000 There's no issues with making that tax free benefit for your heirs at the last 344 00:17:31,000 --> 00:17:36,850 second, but with a life insurance policy, you have to do that well in advance. 345 00:17:37,060 --> 00:17:41,409 And to do that, you have to know well in advance that you will have 346 00:17:41,409 --> 00:17:44,689 those dollars available and that may be difficult for a lot of people. 347 00:17:45,459 --> 00:17:45,819 Ed Slott: Right. 348 00:17:45,849 --> 00:17:47,979 But if you had the client, that's a good point. 349 00:17:47,979 --> 00:17:50,889 But if you had that person in front of you and you saw the 350 00:17:50,889 --> 00:17:54,519 benefits of life insurance, would you tell them to get into that? 351 00:17:54,519 --> 00:17:57,459 And this goes back to all planning we talk about, of course you wanna 352 00:17:57,459 --> 00:17:59,409 plan before the situation happens. 353 00:17:59,439 --> 00:18:00,759 That's why they call it planning. 354 00:18:01,059 --> 00:18:05,429 Wouldn't you tell that client to do it earlier rather than later or too late? 355 00:18:06,705 --> 00:18:07,034 Jeff Levine: Yes. 356 00:18:07,034 --> 00:18:09,375 If they were going to do that, I would have them do it sooner 357 00:18:09,375 --> 00:18:11,264 rather than later, uh, provided. 358 00:18:11,264 --> 00:18:13,635 I knew that they could make it through their retirement, but again, 359 00:18:13,635 --> 00:18:15,284 that's, that's the unknown, right? 360 00:18:15,284 --> 00:18:17,355 We just don't know what the future will hold. 361 00:18:17,625 --> 00:18:20,925 Uh, of, you know, years ago, people thought that they could put their money 362 00:18:20,925 --> 00:18:25,170 in the bank and making 5% interest forever would be a no brainer. 363 00:18:25,455 --> 00:18:29,024 And then we went for years now where people thought, well, I'll always be able 364 00:18:29,024 --> 00:18:33,375 to get a mortgage at 0% and neither of those things turn out to be true because 365 00:18:33,375 --> 00:18:34,770 we just don't know what the future holds. 366 00:18:35,160 --> 00:18:35,510 Ed Slott: Right. 367 00:18:35,600 --> 00:18:38,395 But the point is that we always come down to this. 368 00:18:38,395 --> 00:18:42,864 It seems like in the last few episodes of this, uh, podcast, we come down, 369 00:18:43,254 --> 00:18:44,814 it comes down to the same thing. 370 00:18:44,965 --> 00:18:46,284 We realize there's an issue. 371 00:18:46,284 --> 00:18:49,584 I happen to like both the Roth and the life insurance, but it comes 372 00:18:49,584 --> 00:18:54,175 down to planning the earlier the better, it always comes down to this. 373 00:18:54,415 --> 00:18:56,564 The more you plan, the more you keep. 374 00:18:57,204 --> 00:18:58,425 Jeff Levine: I would agree with that. 375 00:18:58,905 --> 00:18:59,565 And you're right. 376 00:18:59,895 --> 00:19:02,504 We, we do end up coming down to that over and over. 377 00:19:02,504 --> 00:19:05,715 So as a quick recap, you know, talking for, for someone thinking 378 00:19:05,715 --> 00:19:09,165 like, wow, covered a lot today, what are some of the key takeaways? 379 00:19:09,345 --> 00:19:13,459 If we're looking at life insurance as a potential benefit Ed, I think some of 380 00:19:13,459 --> 00:19:17,300 the key insights you provided there are that it could be a defined value, right? 381 00:19:17,300 --> 00:19:19,280 You don't have to worry about what the market does. 382 00:19:19,490 --> 00:19:24,199 You can just say, I will pay the insurance company X and my heirs will get Y and 383 00:19:24,205 --> 00:19:25,969 whatever things happen in the interim. 384 00:19:25,975 --> 00:19:27,500 That's on the insurance company. 385 00:19:27,500 --> 00:19:27,860 Not me. 386 00:19:27,865 --> 00:19:29,750 I can know I've left behind a legacy. 387 00:19:30,030 --> 00:19:32,620 In addition to that, You mentioned the really strong benefit. 388 00:19:32,620 --> 00:19:36,580 The fact that it's tax free to heirs as is Roth IRAs, but also the fact that 389 00:19:36,580 --> 00:19:38,170 you can shift it outside of your estate. 390 00:19:38,170 --> 00:19:42,100 So for those who believe they will have an estate tax issue today, or maybe 391 00:19:42,100 --> 00:19:46,629 don't trust Congress to keep the current estate tax exemption, where it is that 392 00:19:46,840 --> 00:19:49,000 life insurance may provide a value there. 393 00:19:49,340 --> 00:19:52,310 Some of the key arguments I made, I think are not only that it's tax free 394 00:19:52,310 --> 00:19:57,590 at the time of your heirs receiving it, but they get an extra 10 years in 395 00:19:57,590 --> 00:20:00,980 which to keep those dollars invested, which could see the amount that 396 00:20:00,980 --> 00:20:02,720 they get potentially double, right? 397 00:20:02,720 --> 00:20:05,149 Obviously their investment gains and losses are up to them. 398 00:20:05,155 --> 00:20:08,600 It depends on what happens, but it could allow that money to double or even 399 00:20:08,600 --> 00:20:13,340 more over that 10 years, giving them an even bigger tax free windfall than 400 00:20:13,340 --> 00:20:15,270 they would've had via life insurance. 401 00:20:15,270 --> 00:20:19,140 It provides more flexibility for you, the owner during your lifetime. 402 00:20:19,380 --> 00:20:23,520 Should you need those dollars and perhaps, uh, you know, significantly as well, 403 00:20:23,670 --> 00:20:25,170 there are no underwriting requirements. 404 00:20:25,170 --> 00:20:27,390 You can do it at any time. 405 00:20:27,395 --> 00:20:28,290 Would you agree with that, ed? 406 00:20:28,680 --> 00:20:32,040 Ed Slott: Well, except for the fact that you're giving beneficiaries too much 407 00:20:32,045 --> 00:20:36,120 credit to keep their hands off their inherited rock funds for a full 10 years. 408 00:20:36,150 --> 00:20:38,580 Jeff Levine: Get your sticky fingers off your own inheritance. 409 00:20:38,585 --> 00:20:39,090 That's right. 410 00:20:39,815 --> 00:20:43,055 Well, one thing that they do share in common ed is that they're both 411 00:20:43,055 --> 00:20:47,435 tax free and we both agree that, uh, tax free sounds pretty good. 412 00:20:47,435 --> 00:20:47,765 Right? 413 00:20:47,915 --> 00:20:48,155 Ed Slott: Right. 414 00:20:48,160 --> 00:20:49,895 Tax free is always better. 415 00:20:49,895 --> 00:20:52,025 It's my number one, always rule. 416 00:20:52,775 --> 00:20:53,105 Jeff Levine: All right. 417 00:20:53,110 --> 00:20:58,385 Well, Ed, there are two sides to every coin in every debate, but your life and 418 00:20:58,385 --> 00:21:02,765 retirement decisions are too important to leave up to that coin flip and that's why 419 00:21:02,765 --> 00:21:08,185 one thing that you and I always continue to agree on is that people need to make 420 00:21:08,185 --> 00:21:12,025 sure they're thinking through any big decision like this with a knowledgeable 421 00:21:12,025 --> 00:21:15,685 financial advisor or tax professional so that they can weigh the pros and the cons 422 00:21:15,685 --> 00:21:20,305 of the different options against their specific set of goals and objectives. 423 00:21:20,555 --> 00:21:23,294 Look, if you'd like to continue the discussion with Ed or I, 424 00:21:23,345 --> 00:21:24,575 we'd love to hear from you. 425 00:21:24,815 --> 00:21:26,195 Tell us what we missed. 426 00:21:26,465 --> 00:21:28,504 Tell us the points that you thought were the best. 427 00:21:28,745 --> 00:21:30,485 You got a topic for a future debate. 428 00:21:30,485 --> 00:21:31,625 We'd love to hear from you. 429 00:21:31,625 --> 00:21:36,370 Let us know you can reach Ed on Twitter at @TheSlottReport, that's 430 00:21:36,840 --> 00:21:38,380 @TheSlottReport with two Ts. 431 00:21:38,590 --> 00:21:40,760 You can reach me @CPAPlanner. 432 00:21:40,780 --> 00:21:42,510 That's @CPAPlanner. 433 00:21:42,700 --> 00:21:45,700 We'd love to hear from you ed, as always. 434 00:21:45,760 --> 00:21:46,660 It's been a pleasure. 435 00:21:46,665 --> 00:21:48,700 I look forward to our next debate. 436 00:21:49,150 --> 00:21:49,450 Ed Slott: Yep. 437 00:21:49,455 --> 00:21:52,260 Our next installment on the great retirement debate! 438 00:21:52,850 --> 00:21:56,090 OUTRO: Jeffrey Levine is chief planning officer for Buckingham wealth partners. 439 00:21:56,150 --> 00:21:59,360 This podcast is for informational and educational purposes only, and should 440 00:21:59,360 --> 00:22:02,630 not be construed as specific investment accounting, legal or tax advice. 441 00:22:02,660 --> 00:22:05,570 Certain information mentioned may be based on third party information, 442 00:22:05,575 --> 00:22:08,420 which may become outdated or otherwise superseded without notice. 443 00:22:08,480 --> 00:22:11,690 Third party information is deemed to be reliable, but it's accuracy and 444 00:22:11,690 --> 00:22:13,160 completeness cannot be guaranteed. 445 00:22:13,280 --> 00:22:16,280 The topic discussed in corresponding arguments are those of the speakers 446 00:22:16,460 --> 00:22:18,680 and may not accurately reflect those of Buckingham wealth.