Some examples are stocks, bonds, exchange-traded funds (ETFs), and real estate investment trusts (REITs).<\/p>\n\n\n\n
The question is:<\/p>\n\n\n\n\n\n\n\n
What’s Asset Location?<\/h2>\n\n\n\n
Asset location is about the tax management<\/em> and the tax location<\/em> of assets inside a portfolio.<\/p>\n\n\n\n It\u2019s equally important to know how much money your clients need for retirement and how much they can keep. When you take distributions from a portfolio, the assets and accounts are taxed differently.<\/p>\n\n\n\n Pulling income from different types of accounts can be very advantageous, as it increases the after-tax income that’s kept, controls tax brackets and maximizes Social Security income.<\/p>\n\n\n\n Properly structured cash value life insurance<\/a><\/strong> is a unique asset that fits into the tax-free bucket and has no contribution or income limits like most Roth accounts.<\/p>\n\n\n\n To utilize asset location for tax management within a portfolio, ideally the client is between ages 25-55. They should also need life insurance and would prefer to add additional income in retirement, even if it’s more than 15 years away.<\/p>\n\n\n\n Additionally, the ideal client for asset location may have met contribution limits for other plans, be risk-averse, and seek tax-advantaged solutions. Or at the very least, they should be concerned about future tax rates and market exposure.<\/p>\n\n\n\n Julie, a 40-year-old healthy female, is looking for additional tax-effective strategies to save money for retirement income. However, she’s maxed out her 401(k) and Roth IRA contributions.<\/p>\n\n\n\n She currently has $250,000 in her 401(k) (contributing $10,000 annually along with a $5,000 match from her employer) and a brokerage account with a $100,000 balance (contributing $20,000\/year). Based on this path and assuming she retires at age 65 and earns a 6% gross return, her projected after-tax income is $119,000 annually.<\/p>\n\n\n\n Life insurance has no contribution limits and can provide unique tax advantages if the policy is designed as a non-MEC. Julie decides to keep her current 401(k) but switches future contributions, and the employer matches into a Roth 401(k).<\/p>\n\n\n\n She also chooses to keep her current $100,000 brokerage account but switches all future $20,000-per-year contributions into an index universal life insurance policy<\/strong><\/a> designed for the option of tax-free distributions. At the same growth assumptions, Julie’s after-tax income in retirement is now projected to be $149,000 per year. That’s an increase of 25% driven by changing the asset locations.<\/p>\n\n\n\n The death benefit on the life insurance policy will provide a tax-free amount to heirs beyond the cash value. Plus, it’ll give financial support to her family during her working years.<\/p>\n\n\n\n The tax management and asset location inside a portfolio can be important considerations to help clients manage their money for retirement planning.<\/p>\n\n\n\n Being able to take income from different account types can be beneficial and offer tax-advantaged solutions. Because of this, life insurance can be a fit for a client’s “tax-free bucket” since it has no contribution or income limits like a Roth account does.<\/p>\n\n\n\n Navigating these strategies effectively requires insight and expertise to ensure clients maximize their retirement assets while minimizing tax burdens.<\/p>\n\n\n\n Want to leverage a team of experts to implement strategies like this for your clients? Contact us today!<\/a><\/strong><\/p>\n\n\n\nAssets can be broken down into three tax buckets:<\/h5>\n\n\n\n
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Examples:<\/em><\/strong> Brokerage account, SMA, savings account
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Examples: <\/em><\/strong>401(k), 403(b), IRA
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Examples:<\/em> <\/strong>Roth IRA, Roth 401(k), cash value life insurance<\/li>\n<\/ol>\n\n\n\nIdeal Client Profile<\/h3>\n\n\n\n
Related: Life Insurance as Part of a Retirement Plan<\/a><\/h4>\n\n\n\n
Key Selling Points for Asset Location<\/h3>\n\n\n\n
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Asset Location for Tax Management Case Study<\/h3>\n\n\n\n
Client Comments to Watch For<\/h3>\n\n\n\n
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Right Questions to Ask<\/h3>\n\n\n\n
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Final Thoughts on Asset Location for Tax Management<\/h2>\n\n\n\n
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