Personalized Advice from a Trusted Financial Advisor vs. Mass Market Retirement "Experts"

- Amanda Vaught, amandavaught@propel-fa.com

Recently, Christine Benz of Morningstar interviewed Ed Slott about recent legal changes that impact retirement and tax planning.  

Ed Slott (self-proclaimed retirement expert) discusses the impact of the SECURE Act and promotes his latest book on retirement. Propel Advisor Danielle Woods covered the impact of the SECURE Act in a recent blog post "Traditional Retirement Savings: Why Tax-Deferred Accounts like 401(k)s May Be the Wrong Choice for Some Taxpayers" and our Jan. 27, 2021 Webinar, "New Year, New Strategies: Rethinking Your Savings Plan".

Around the 6:15 mark, Benz asks Slott for recommendations for workarounds to this new 10-year withdrawal rule for inherited IRAs. Slott says one strategy is to use permanent life insurance. Using permanent life insurance may be the right choice for some, but this is not going to be the right choice for most. Permanent life insurance is expensive and coverage can lapse if you miss a monthly payment.

In contrast, we typically recommend accounts with both flexibility and cost-effectiveness: a taxable brokerage account. You can make regular monthly deposits into your brokerage account, as you would with a life insurance policy, and if you miss one month you do not lose your money like you would with an insurance company. Better still, you have access to this money if you need it during your life time. We all know, after experiencing the recent Covid pandemic, how quickly our plans can change due to forces beyond our control. Why take the risk of tying up funds with an insurance company?

When using a taxable brokerage account, you pay regular income tax on the income generated from interest and non-qualified dividend payments, but long-term capital gains (or losses) can be monitored by Propel and only taken when it is tax-efficient to do so. Upon inheritance, you enjoy two great benefits: (1) avoid probate by naming beneficiaries directly through the account custodian, and (2) the inheritors enjoy a step-up in basis and pay zero tax on assets if they immediately sell. (See our infographic on Cost Basis Step-Up for a more in-depth explanation of the tax consequences.)

At Propel, we can give you advice based on your personal financial situation and goals. Please consult with us before making a major decision like purchasing an expensive life insurance policy.