Tax Season is Here!

Josh Ver Hoeve – VP Annuity & Life Distribution

It’s that time of year again — TAX season. As many of you are working with clients, you may have gotten comments about tax refunds being less than expected. After all, taxes were reduced, and deductions increased, so shouldn’t refunds be larger? Well, tax refunds are only down eight percent on average this year ( However, I think we all seem to be hearing about those cases in which certain individuals were hit harder. The three most popular reasons for lower refunds are; 1st the loss of a $4,100 personal exemption, 2nd limits on state and property tax deductions, and 3rd, perhaps the most substantial impact, more money in your paycheck with adjusted withholdings.

Conventional financial wisdom from many CPAs and financial planners advises clients to stash more away into tax-deferred accounts like IRAs and 401(k)s to solve an immediate tax issue, sometimes ignoring what those same tax savings today will cost in the future. Perhaps we need to see tax rates go back to 80+% like they were sixty years ago before people start saving for retirement differently.

We are currently over $22 trillion in debt. A pretty interesting website along with videos depicting that debt can be found at To give us perspective, we have doubled our national debt in just the last ten years, and have tripled it in the last fifteen years. In the year I was born, 1982, we were just under $1 trillion of debt, and we are now 22 times that amount! Plain and simple, taxes have to go up at some point, and we might all agree that they’re not only on sale today, but actually predictable right now.

A typical 50-year-old saving for a retirement age of 67 will gamble with 401(k) contributions in hopes that the tax rate is lower in twenty years when they access the cash. Of course one of the unique investments that works unlike anything else is cash value life insurance. We can pay that tax now, and take it tax-free at retirement. While IUL is an amazing product, the IUL industry is spinning right now. We had a major regulation put into place about three years ago requiring us to show clients specific RORs and specific loan arbitrage. At first glance, these regulations made sense. They made sense to me and everyone else who thought a 10% ROR on an IUL illustration was absurd. However, the regulation Actuarial Guideline 49 (AG49) has had the opposite effect.

Insurance carriers are simply revising products to illustrate at 6-7% which seems reasonable, but they have added crediting bonuses and increased fees. Don’t get me wrong, crediting bonuses are great, but it’s starting to get out of hand. To pay for many of these bonuses, fees and costs on IUL have nearly doubled and tripled. In addition to insurance carriers trying to outpace regulations, we have new CSO tables which must be used for ALL life insurance products. What this means is clients are living longer, and because of that, every insurance carrier must revise or create new products using the updated mortality tables. The deadline for this is 01/01/2020 so we will see a plethora of new products come out this year in the life insurance space. The effect will be different for each type of life insurance. We would assume everything should be less expensive. However reserve requirements have also increased, so even though people are living longer, premiums will go up for most policies.

Asset’s life team will work diligently to keep you informed as this happens. We’re committed to vetting out products thoroughly before recommending them to you. Life insurance is a long-term commitment, sometimes as long as 30, 40 or even 50+ years. For this reason, it’s vitally important to make sure the products we recommend are not just the best today or a year from now, but even more important that they stand the test of time. Allianz, National Life Group, and Minnesota Life have been core carriers for us on the IUL side, and they have all held true to their promises. You won’t get a product recommendation from Asset because the cap is high today when we know that same cap rate is just as important year after year. The Asset life team spends a tremendous amount of time understanding carrier pricing and product development to assure the best solutions.

Back to taxes…have you used the Planning Compass with a client before? Do you know what the Planning Compass is? This tool compares all of the statistics discussed above to determine which product makes the best sense to use when saving for retirement. It’s a dynamic calculator that compares cash value life insurance with tax-deferred accounts. Start by filling out the Request Form then call our life team to schedule a thirty-minute phone/web call with us to show you the power of this tool.

There is over $2.5 trillion in IRA assets in the United States, and when I speak with advisors, they all tend to agree with me that taxes are on sale and the future holds tax increases. If we can agree on that, how about we all do our clients a favor and take some of that $2.5 trillion in IRA assets and convert them to a Roth IRA. Contact our annuity team at 888-303-8755 to tell you about Fixed Indexed Annuities that work well with Roth conversions! If you missed Kurt Metcalfe’s breakout at Sales & Networking on “Annuity Product Niches” which includes these “Roth-friendly” annuities, you need to hear it.

Taxes are inevitable, so let’s do all we can to protect the retirement incomes of our clients from them!

Add Value with the QCD conversation.

Sam Payne RICP®, CLTC VP, Business Consultant

Referrals, the holy grail of any enterprise, are a byproduct of providing exceptional service and value to your existing clients. So much so that they want to share you with their friends and acquaintances, and so you become referable.

Informing and educating your clients about Qualified Charitable Distributions (QCD) and the benefits of using them while filling out their tax forms, I believe is one of those opportunities to add value. The more value you add, you more likely you will become more referable.

What is a QCD? QCD have been around in some form since the Pension Protection Act in 2006. Their value changed as a result of the Tax Cuts and Jobs Act of 2015. And under current tax law, they can provide an additional benefit for tax years 2018 through 2025. Before 2018, the QCD strategic importance lay primarily in the fact that it could help older taxpayers meet their philanthropic goals while also satisfying individual retirement account (IRA) required minimum distributions (RMDs).

Since the passage of the Tax Cuts and Jobs Act of 2017, and the increase in the standard deduction, many individuals find themselves in a position where their total itemized deductions do not exceed the standard deduction, so deducting charitable contributions will not have the benefit it may have previously.

Here’s an example: For the 2018 tax year, a couple plan to file jointly. They are both age 75 and anticipate adjusted gross income (AGI) of $125,000, including $60,000 in RMDs.

  • $125,000 total income (including 60,000 RMD)
  • Standard deduction $26,600
  • Charitable gift $5,000
  • Taxable income $98,400 ($125,000 minus standard deduction)

If the QCD were utilized, the taxable income would be $93,400 saving approximately $1,100 in taxes.

Let’s try and make this a little easier. What is a QCD in a nutshell? It is a section of the tax code designed to help older Americans fulfill their charitable wishes directly from an IRA.

What does it do? It allows individuals who are required to receive required minimum distributions from IRA’s to have their, or some portion of their RMD, sent directly to the charity so that the RMD does not show up as income on the individual’s tax return.

What does that mean? You can still make your charitable donations, and by using the QCD, you may be able to save some taxes along the way.

Reach out to your Business Consultant for more information on QCD, the rules, and limitations. You can also begin talking to your clients currently receiving RMDs. Start the conversation by asking if they are giving to a charity annually and if they are utilizing the QCD?

This is one of many ways to add value to your clients and become more referable. We have a great brochure, “A Guide On How To Gain Clients Through Effective Referral Process,” that shares other ideas to attract more referrals.

Reach out to your Marketing Consultant with any questions and on how you can get started at (858) 303-8755.

The Roth Revolution

Bruce Beaty MBA,CLU, ChFC, RICP, LACP, CSA – VP, Business Consultant

As a planning tool, Roth IRAs have many advantages including the ability to create tax-free growth, income, and death benefits as articulated in David McKnight’s book, “The Power of Zero.”

Roth IRA contributions are limited based on earned income and include a phase-out range depending on one’s tax status:

  • Single $122,000-$137,000
  • Joint $193,000-$203,000

However, Roth conversions are available to all, and while a conversion will increase this year’s taxable income, many experts agree that income taxes are “on sale,” including industry guru and CPA, Ed Slott.

Some clients may have more flexibility in controlling their taxable income than others in any given year, including clients with other tax-free options like existing Roths, cash value life insurance, as well as business owners. These individuals can reduce their taxable income without affecting their lifestyle, and create a taxable income vacuum. (This creates room in their tax bracket to conduct a conversion without increasing their marginal rates to excessive levels.)

Every one of your clients has the opportunity to consider a conversion and for many that may make a lot of sense to do now and for the next several years under the current tax structure.

Here is an example:
Consider an example of a married couple age 65+ filing jointly with $30,000 of Social Security as their base income and $3,300,000 or less in retirement accounts.

Note: 2019 standard deduction (65+ joint) = $27,000

Income: Fed Tax: Taxable:
Social Security 30,000 X85% 25,500
IRA & Other 166,100 166,100
Total 196,100 191,600
Standard Deduction -27,000
Net Taxable 164,600
(10% bracket – Max 19,400) 19,400 X10% 1,940
(12% bracket – Max 78,950) 59,550 X12%
(22% bracket – Max 168,400) 85,650 X22%
Total 27,929 = 14%

With a life expectancy of 20 years, your client can use or transfer from their retirement accounts up to $166,100 per year or $3,322,000 at 14% income tax.

The Bottom Line?

With the premium bonus options available some up to 12-13% (and even one year in the fixed bucket), your clients can be made whole from the tax impact in as short as one year, and now they have the ability to
capitalize on all the benefits of a Roth IRA. Some producers also like to use a large income rider bonus solution for clients. Besides, who doesn’t like the sound of tax-free income for life and a tax-free death benefit to boot?

Contact our Asset Marketing Systems Team to explore the best options for your clients today at 888-303-8755.

-Bruce Beaty

VP/ Business Consultant