Utilizing Life insurance as a tax mitigation

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sc9182
Posts: 587
Joined: Wed Aug 17, 2016 7:43 pm

Re: Utilizing Life insurance as a tax mitigation

Post by sc9182 »

smitcat wrote: Wed Jul 21, 2021 5:37 pm
sc9182 wrote: Wed Jul 21, 2021 3:46 pm Mostly cut-n-pasted from another thread:
smitcat wrote: Tue Jul 20, 2021 11:40 am
I have asked these questions before and received no answers which would support the stategy.
Here is a link to one such post...

viewtopic.php?f=2&t=351369&p=6068863#p6068863
Since this Poster excited about Roth., let me ask for counterfactual. If Roth conversion likley to provide barely slight advantage “over longer term” (Prof. McQ thread) — how is someone going to ensure Roth’s long term survival - to effectuate its break-even-point/success. Or if unable to achieve longer longevity (sorry), what action one going to take to reduce short-term Roth’s conversion-loss due to early demise of Roth holder !? Got an idear ?

Do note: many “large” and long-term Roth conversions are likely to involve some tax-realization towards paying conversion taxes — most often done from brokerage (likely with some embedded cap gains). Hence, upon the initial years of Roth conversion (s) — it’s likely Roth conversion would lose against free step-up basis of Brokerage monies used (with embedded cap gains) to pay for conversion-taxes. If such cap-gains not realized until death — likely, they would get free step-up upon early demise of the Brokerage/Roth holder. Alas, the Recently realized cap-gains negated put Roth “net” portfolio value to be lower than that of {TDA + Brokerage (with some embedded cap gains)}

I am OK with Roth, and especially like MBR (excess savings/investing go here prior to Brokerage). But Roth conversions at marginal rates higher than 22-24% (and/or considering some NIIT, IRMAA tier points), are less likely to assure conversions' success. Then again -- very specific (a Few BHers) individual cases -- larger/extended Roth conversions could make sense. But do crunch numbers ..
This post is about Life insurance....please tell us how that would work?

Which life insurance do you have or do you suggest?
What is the cost per XXX for a 60 year old for that insurance?
Are there limitations based on current health for that insurance?
Does the insurance have a fixed payout or is it adjusted for inflation?
Please describe how this would work....
You possibly didn’t accrue pension (not payments), but started working and eligible for pension (and maintaining pension eligibility all along) starting back when !? Not at 60 right !?
How would I recommend what insurance you need to have (or should have bought) - you should have had cheap/affordable insurance back then/when. It’s a planning opportunity for right set of folks with decent opportunity- to consider. Sorry insurance is not bought as easy as ETFs :-)

Ideally, I want to be eligible for large stable pension to fill up all our lower tax brackets, alas, my company ain’t having it — gotta work with what situation/applicable to individual scenario and such.
Topic Author
smitcat
Posts: 8015
Joined: Mon Nov 07, 2016 10:51 am

Re: Utilizing Life insurance as a tax mitigation

Post by smitcat »

sc9182 wrote: Wed Jul 21, 2021 8:49 pm
smitcat wrote: Wed Jul 21, 2021 5:37 pm
sc9182 wrote: Wed Jul 21, 2021 3:46 pm Mostly cut-n-pasted from another thread:
smitcat wrote: Tue Jul 20, 2021 11:40 am
I have asked these questions before and received no answers which would support the stategy.
Here is a link to one such post...

viewtopic.php?f=2&t=351369&p=6068863#p6068863
Since this Poster excited about Roth., let me ask for counterfactual. If Roth conversion likley to provide barely slight advantage “over longer term” (Prof. McQ thread) — how is someone going to ensure Roth’s long term survival - to effectuate its break-even-point/success. Or if unable to achieve longer longevity (sorry), what action one going to take to reduce short-term Roth’s conversion-loss due to early demise of Roth holder !? Got an idear ?

Do note: many “large” and long-term Roth conversions are likely to involve some tax-realization towards paying conversion taxes — most often done from brokerage (likely with some embedded cap gains). Hence, upon the initial years of Roth conversion (s) — it’s likely Roth conversion would lose against free step-up basis of Brokerage monies used (with embedded cap gains) to pay for conversion-taxes. If such cap-gains not realized until death — likely, they would get free step-up upon early demise of the Brokerage/Roth holder. Alas, the Recently realized cap-gains negated put Roth “net” portfolio value to be lower than that of {TDA + Brokerage (with some embedded cap gains)}

I am OK with Roth, and especially like MBR (excess savings/investing go here prior to Brokerage). But Roth conversions at marginal rates higher than 22-24% (and/or considering some NIIT, IRMAA tier points), are less likely to assure conversions' success. Then again -- very specific (a Few BHers) individual cases -- larger/extended Roth conversions could make sense. But do crunch numbers ..
This post is about Life insurance....please tell us how that would work?

Which life insurance do you have or do you suggest?
What is the cost per XXX for a 60 year old for that insurance?
Are there limitations based on current health for that insurance?
Does the insurance have a fixed payout or is it adjusted for inflation?
Please describe how this would work....
You possibly didn’t accrue pension (not payments), but started working and eligible for pension (and maintaining pension eligibility all along) starting back when !? Not at 60 right !?
How would I recommend what insurance you need to have (or should have bought) - you should have had cheap/affordable insurance back then/when. It’s a planning opportunity for right set of folks with decent opportunity- to consider. Sorry insurance is not bought as easy as ETFs :-)

Ideally, I want to be eligible for large stable pension to fill up all our lower tax brackets, alas, my company ain’t having it — gotta work with what situation/applicable to individual scenario and such.
As posted above - I have asked these questions before and received no answers which would support the stategy.
sc9182
Posts: 587
Joined: Wed Aug 17, 2016 7:43 pm

Re: Utilizing Life insurance as a tax mitigation

Post by sc9182 »

smitcat wrote: Thu Jul 22, 2021 8:24 am
sc9182 wrote: Wed Jul 21, 2021 8:49 pm
smitcat wrote: Wed Jul 21, 2021 5:37 pm
sc9182 wrote: Wed Jul 21, 2021 3:46 pm Mostly cut-n-pasted from another thread:
smitcat wrote: Tue Jul 20, 2021 11:40 am
I have asked these questions before and received no answers which would support the stategy.
Here is a link to one such post...

viewtopic.php?f=2&t=351369&p=6068863#p6068863
Since this Poster excited about Roth., let me ask for counterfactual. If Roth conversion likley to provide barely slight advantage “over longer term” (Prof. McQ thread) — how is someone going to ensure Roth’s long term survival - to effectuate its break-even-point/success. Or if unable to achieve longer longevity (sorry), what action one going to take to reduce short-term Roth’s conversion-loss due to early demise of Roth holder !? Got an idear ?

Do note: many “large” and long-term Roth conversions are likely to involve some tax-realization towards paying conversion taxes — most often done from brokerage (likely with some embedded cap gains). Hence, upon the initial years of Roth conversion (s) — it’s likely Roth conversion would lose against free step-up basis of Brokerage monies used (with embedded cap gains) to pay for conversion-taxes. If such cap-gains not realized until death — likely, they would get free step-up upon early demise of the Brokerage/Roth holder. Alas, the Recently realized cap-gains negated put Roth “net” portfolio value to be lower than that of {TDA + Brokerage (with some embedded cap gains)}

I am OK with Roth, and especially like MBR (excess savings/investing go here prior to Brokerage). But Roth conversions at marginal rates higher than 22-24% (and/or considering some NIIT, IRMAA tier points), are less likely to assure conversions' success. Then again -- very specific (a Few BHers) individual cases -- larger/extended Roth conversions could make sense. But do crunch numbers ..
This post is about Life insurance....please tell us how that would work?

Which life insurance do you have or do you suggest?
What is the cost per XXX for a 60 year old for that insurance?
Are there limitations based on current health for that insurance?
Does the insurance have a fixed payout or is it adjusted for inflation?
Please describe how this would work....
You possibly didn’t accrue pension (not payments), but started working and eligible for pension (and maintaining pension eligibility all along) starting back when !? Not at 60 right !?
How would I recommend what insurance you need to have (or should have bought) - you should have had cheap/affordable insurance back then/when. It’s a planning opportunity for right set of folks with decent opportunity- to consider. Sorry insurance is not bought as easy as ETFs :-)

Ideally, I want to be eligible for large stable pension to fill up all our lower tax brackets, alas, my company ain’t having it — gotta work with what situation/applicable to individual scenario and such.
As posted above - I have asked these questions before and received no answers which would support the stategy.
Let me summarize - one needs insurance to ensure Roth conversions' success (to provide long runway; failing to achieve so, atleast enjoy some tax-free insurance payout to cover the deficiency)

How someone wakes up at age 60, and thinks about insurance just then, without apriori knowledge/action is beyond my pay-grade. Sure involves planning ..

Then again, without longevity after Roth conversions' -- likely someone's Roth-converted portfolio will likely to be slightly disadvantageous than TDA+Brokerage(with embedded cap gains, assuming Step-up basis at short-lived Roth holders death)
Topic Author
smitcat
Posts: 8015
Joined: Mon Nov 07, 2016 10:51 am

Re: Utilizing Life insurance as a tax mitigation

Post by smitcat »

sc9182 wrote: Thu Jul 22, 2021 9:41 am
smitcat wrote: Thu Jul 22, 2021 8:24 am
sc9182 wrote: Wed Jul 21, 2021 8:49 pm
smitcat wrote: Wed Jul 21, 2021 5:37 pm
sc9182 wrote: Wed Jul 21, 2021 3:46 pm Mostly cut-n-pasted from another thread:

Since this Poster excited about Roth., let me ask for counterfactual. If Roth conversion likley to provide barely slight advantage “over longer term” (Prof. McQ thread) — how is someone going to ensure Roth’s long term survival - to effectuate its break-even-point/success. Or if unable to achieve longer longevity (sorry), what action one going to take to reduce short-term Roth’s conversion-loss due to early demise of Roth holder !? Got an idear ?

Do note: many “large” and long-term Roth conversions are likely to involve some tax-realization towards paying conversion taxes — most often done from brokerage (likely with some embedded cap gains). Hence, upon the initial years of Roth conversion (s) — it’s likely Roth conversion would lose against free step-up basis of Brokerage monies used (with embedded cap gains) to pay for conversion-taxes. If such cap-gains not realized until death — likely, they would get free step-up upon early demise of the Brokerage/Roth holder. Alas, the Recently realized cap-gains negated put Roth “net” portfolio value to be lower than that of {TDA + Brokerage (with some embedded cap gains)}

I am OK with Roth, and especially like MBR (excess savings/investing go here prior to Brokerage). But Roth conversions at marginal rates higher than 22-24% (and/or considering some NIIT, IRMAA tier points), are less likely to assure conversions' success. Then again -- very specific (a Few BHers) individual cases -- larger/extended Roth conversions could make sense. But do crunch numbers ..
This post is about Life insurance....please tell us how that would work?

Which life insurance do you have or do you suggest?
What is the cost per XXX for a 60 year old for that insurance?
Are there limitations based on current health for that insurance?
Does the insurance have a fixed payout or is it adjusted for inflation?
Please describe how this would work....
You possibly didn’t accrue pension (not payments), but started working and eligible for pension (and maintaining pension eligibility all along) starting back when !? Not at 60 right !?
How would I recommend what insurance you need to have (or should have bought) - you should have had cheap/affordable insurance back then/when. It’s a planning opportunity for right set of folks with decent opportunity- to consider. Sorry insurance is not bought as easy as ETFs :-)

Ideally, I want to be eligible for large stable pension to fill up all our lower tax brackets, alas, my company ain’t having it — gotta work with what situation/applicable to individual scenario and such.
As posted above - I have asked these questions before and received no answers which would support the stategy.
Let me summarize - one needs insurance to ensure Roth conversions' success (to provide long runway; failing to achieve so, atleast enjoy some tax-free insurance payout to cover the deficiency)

How someone wakes up at age 60, and thinks about insurance just then, without apriori knowledge/action is beyond my pay-grade. Sure involves planning ..

Then again, without longevity after Roth conversions' -- likely someone's Roth-converted portfolio will likely to be slightly disadvantageous than TDA+Brokerage(with embedded cap gains, assuming Step-up basis at short-lived Roth holders death)
As others have pointed out - incorent babble with no value.
sc9182
Posts: 587
Joined: Wed Aug 17, 2016 7:43 pm

Re: Utilizing Life insurance as a tax mitigation

Post by sc9182 »

smitcat wrote: Thu Jul 22, 2021 11:34 am
sc9182 wrote: Thu Jul 22, 2021 9:41 am
smitcat wrote: Thu Jul 22, 2021 8:24 am
sc9182 wrote: Wed Jul 21, 2021 8:49 pm
smitcat wrote: Wed Jul 21, 2021 5:37 pm

This post is about Life insurance....please tell us how that would work?

Which life insurance do you have or do you suggest?
What is the cost per XXX for a 60 year old for that insurance?
Are there limitations based on current health for that insurance?
Does the insurance have a fixed payout or is it adjusted for inflation?
Please describe how this would work....
You possibly didn’t accrue pension (not payments), but started working and eligible for pension (and maintaining pension eligibility all along) starting back when !? Not at 60 right !?
How would I recommend what insurance you need to have (or should have bought) - you should have had cheap/affordable insurance back then/when. It’s a planning opportunity for right set of folks with decent opportunity- to consider. Sorry insurance is not bought as easy as ETFs :-)

Ideally, I want to be eligible for large stable pension to fill up all our lower tax brackets, alas, my company ain’t having it — gotta work with what situation/applicable to individual scenario and such.
As posted above - I have asked these questions before and received no answers which would support the stategy.
Let me summarize - one needs insurance to ensure Roth conversions' success (to provide long runway; failing to achieve so, atleast enjoy some tax-free insurance payout to cover the deficiency)

How someone wakes up at age 60, and thinks about insurance just then, without apriori knowledge/action is beyond my pay-grade. Sure involves planning ..

Then again, without longevity after Roth conversions' -- likely someone's Roth-converted portfolio will likely to be slightly disadvantageous than TDA+Brokerage(with embedded cap gains, assuming Step-up basis at short-lived Roth holders death)
As others have pointed out - incorent babble with no value.
Definitely no-value to you. Sorry, couldn’t help much with your specific insurance predicament. Not worth someone’s time to explain, if you haven’t figured the concept and the involved math.

Providing some insurance planning suggestions for folks who would possibly consider large/multiple Roth conversions in future - to plan/provide sufficiently “long time-frame” ** for post-conversion success.

** Happy to check out Prof. McQ thread here for Roth needing longer time-frame to yield better success.
Last edited by sc9182 on Thu Jul 22, 2021 12:45 pm, edited 3 times in total.
Rex66
Posts: 795
Joined: Tue Aug 04, 2020 5:13 pm

Re: Utilizing Life insurance as a tax mitigation

Post by Rex66 »

Using life insurance gives zero benefit to longevity if your Roth

Take the premiums and invest in taxable.


Every policy purchased in last 30 years has under performed original illustration.
sc9182
Posts: 587
Joined: Wed Aug 17, 2016 7:43 pm

Re: Utilizing Life insurance as a tax mitigation

Post by sc9182 »

Rex66 wrote: Thu Jul 22, 2021 11:58 am Using life insurance gives zero benefit to longevity if your Roth

Take the premiums and invest in taxable.


Every policy purchased in last 30 years has under performed original illustration.
Insurance inter-play in the Roth-conversion case is not providing longevity to Roth - where you get that idea !?

In-lieu of longevity of individual — Roth-conversion could prove to be less net “$$” as compared to TDA + stepped-up basis Brokerage amounts involved. Hence, add some insurance to alleviate “individual’s” not-so longevity risk.
Last edited by sc9182 on Thu Jul 22, 2021 12:47 pm, edited 1 time in total.
Rex66
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Joined: Tue Aug 04, 2020 5:13 pm

Re: Utilizing Life insurance as a tax mitigation

Post by Rex66 »

That’s what I’m saying that you are wrong

Don’t buy any insurance

Just invest those premiums. Very very likely to do better
sc9182
Posts: 587
Joined: Wed Aug 17, 2016 7:43 pm

Re: Utilizing Life insurance as a tax mitigation

Post by sc9182 »

Rex66 wrote: Thu Jul 22, 2021 12:22 pm That’s what I’m saying that you are wrong

Don’t buy any insurance

Just invest those premiums. Very very likely to do better
At an aggregate/pool level — I am sure insurance could rarely be beneficial to consumer. I hear ya — but, we at individual level can’t take individual/specific risk.
For the very similar reasons OP and millions others have/buy Health insurance (or Medicare etc) or auto insurance, and/or LTC etc — you can’t self pay/tackle every possibility. Sorry - I am neither pro-insurance nor anti-insurance., I got no chips in that debate .. nor do I have cycles to educate you why some one should have any type of insurance at all !?

Hopefully your assets will be well within estate tax limit levels !
Last edited by sc9182 on Thu Jul 22, 2021 12:50 pm, edited 1 time in total.
Rex66
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Re: Utilizing Life insurance as a tax mitigation

Post by Rex66 »

First off whole life is not exempt from estate taxes

You have to put it in an irrevocable trust to avoid estate taxes

2nd you can just buy term for premature death. The cost of insurance within permanent insurance is more expensive not even taking into account the crappy investment performance
sc9182
Posts: 587
Joined: Wed Aug 17, 2016 7:43 pm

Re: Utilizing Life insurance as a tax mitigation

Post by sc9182 »

Rex66 wrote: Thu Jul 22, 2021 12:49 pm First off whole life is not exempt from estate taxes

You have to put it in an irrevocable trust to avoid estate taxes

2nd you can just buy term for premature death. The cost of insurance within permanent insurance is more expensive not even taking into account the crappy investment performance
Sorry you got snookered in by OP or some buds. Nowhere did I (here nor elsewhere) necessarily suggested Permanent insurance in this Roth-conversion interplay. Do Check ..
HootingSloth
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Re: Utilizing Life insurance as a tax mitigation

Post by HootingSloth »

sc9182 wrote: Thu Jul 22, 2021 12:52 pm
Rex66 wrote: Thu Jul 22, 2021 12:49 pm First off whole life is not exempt from estate taxes

You have to put it in an irrevocable trust to avoid estate taxes

2nd you can just buy term for premature death. The cost of insurance within permanent insurance is more expensive not even taking into account the crappy investment performance
Sorry you got snookered in by OP or some buds. Nowhere did I (here nor elsewhere) necessarily suggested Permanent insurance in this Roth-conversion interplay. Do Check ..
It's helpful that you clarified you are talking about term life insurance, rather than permanent or whole life. It is still very hazy how you think this relates to doing Roth conversions.

Typically, one buys term life insurance when depending on future income to support yourself or dependents. Typically, one does Roth conversions after retiring, when you no longer depend on future income. What kind of person would be looking at both?

Maybe fill in the blanks a bit.

Step 1. Do Roth conversions.
Step 2. Buy term life insurance.
Step 3. Die?
Step 4. ????
Step 5. Profit!
Global Market Portfolio + modest tilt towards volatility (80/20->60/40 as approach FI) + modest tilt away from exchange rate risk (80% global+20% U.S. stocks; currency-hedge bonds) + tax optimization
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JoeRetire
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Re: Utilizing Life insurance as a tax mitigation

Post by JoeRetire »

smitcat wrote: Tue Jun 15, 2021 11:42 amI have read nothing about this possibility and have no idea how this could possibly work so I wanted to post this in case I am missing something.
You give a bunch of money to an insurance company.
When you die, they give some of it to your heirs.
No taxes are due.

(An expensive way to avoid taxes, IMHO)
Just remember: it's not a lie if you believe it.
Topic Author
smitcat
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Re: Utilizing Life insurance as a tax mitigation

Post by smitcat »

JoeRetire wrote: Thu Jul 22, 2021 1:01 pm
smitcat wrote: Tue Jun 15, 2021 11:42 amI have read nothing about this possibility and have no idea how this could possibly work so I wanted to post this in case I am missing something.
You give a bunch of money to an insurance company.
When you die, they give some of it to your heirs.
No taxes are due.

(An expensive way to avoid taxes, IMHO)
Agreed - thank you
ivk5
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Re: Utilizing Life insurance as a tax mitigation

Post by ivk5 »

Agree there is some kind of analytical or communication disconnect with the one poster. But in the interest of looking at the best possible case: perhaps there are edge cases where Roth conversions are predicated on assumptions that are violated by premature death to a degree worth insuring (via cheap term life).

For example, successful early retiree converts annually based on expectation of higher rates once RMDs kick in, but has un/underemployed heirs with little taxable income. Those conversions could prove suboptimal in the event of premature death (results in reverse rate arbitrage / less spendable funds net of taxes).

Another example- maybe a person recognizes it’s rational to convert but fears “loss aversion” / future regret in the unlikely event of legislative change that would have reduced future marginal tax rate on TDA withdrawals (or even more unlikely changes that reduce/eliminate the deferred tax liability).

Admittedly it’s a stretch… but perhaps in these cases cheap term insurance, while not really economically rational, gets people over psychological barriers to executing the conversions?
Flyer24
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Re: Utilizing Life insurance as a tax mitigation

Post by Flyer24 »

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