How to Turn IRA Distributions Into Tax-Free Wealth | Dan Pascone with Dan Wice | Podcast #23

Posted on July 9, 2025 by Dan Pascone

Answer Box: TL;DR

IRAs and 401(k)s are often terrible inheritance tools – but you can turn them into tax-free legacy if you plan early. In this episode, Dan Pascone and independent insurance advisor Dan Wice break down when you just need simple term life insurance, when more complex permanent insurance can actually make sense, and how to use IRA/401(k) distributions to fund tax-free wealth for the next generation. By strategically pulling money out of qualified accounts in your 60s and repositioning it into properly designed life insurance, you may reduce the future tax burden on your heirs, solve for long-term care, and create more flexibility in retirement.

Key Takeaways

Most young families simply need term life insurance. The core job early on is income replacement: covering mortgage, kids, lifestyle and debts if something happens. Employer coverage (1–3× salary) is rarely enough and usually isn’t portable when you leave that job.
Permanent life insurance is a tool, not a default. Whole life and other permanent policies can have powerful uses – estate planning, long-term care planning, or building tax-advantaged cash value – but they should only come after you’ve checked the boxes on 401(k)s, IRAs, 529s, and basic protection needs.
Most bad insurance “pitches” focus on commission, not design. Many “life insurance as a retirement plan” solutions are built with too much death benefit and not enough premium, which can cause the policy to implode later. Proper design usually means minimum death benefit, maximum funding if the goal is tax-free income.
Qualified accounts (IRAs, 401(k)s) are often inefficient for wealth transfer. You get the tax benefits up front, but heirs pay ordinary income tax on every dollar they inherit – and under the SECURE Act, often must drain the account within 10 years, which can spike their tax bracket.
A powerful strategy: IRA distributions → life insurance. If you won’t need all your IRA/401(k) money for retirement spending, you can start distributions earlier, pay the tax in a controlled way, and redirect the after-tax dollars into a life insurance policy that pays an income-tax-free death benefit.
Life insurance can also be a long-term care solution. Hybrid life/LTC structures can help protect your retirement assets if you or a spouse need extended care – and still leave a benefit to heirs if care is never needed.
Insurance should never be sold in a vacuum. Any policy decision should sit inside a comprehensive financial plan that includes cash flow, retirement, college, estate and tax planning – not just a product pitch.

Key Moments

00:31 – Introducing Dan Wice & his role. Dan explains his 30-year background and how he partners with advisors, CPAs and attorneys on risk management and insurance design.
03:10 – Who really needs risk management planning. Newlyweds, young families, people approaching retirement, business owners, and divorcees all hit life events that trigger insurance needs.
05:34 – Term insurance for young and growing families. How Dan sizes coverage, why group term at work is usually insufficient, and when laddering 10/20/30-year term policies makes sense.
08:47 – “I was pitched this whole life policy…” Dan describes common scenarios where someone is sold permanent insurance without context – and why that’s often not a fit.
10:19 – Term vs permanent, demystified. Simple breakdown of term, whole life, universal life, indexed UL, and variable UL – and what each is actually designed to do.
13:11 – Using permanent insurance like a Roth alternative. How high earners who max out other vehicles can use properly structured permanent policies to build future tax-free income.
16:08 – Long-term care & watching parents spend down assets. Why 50-somethings are increasingly focused on not repeating their parents’ LTC experience – and how insurance can help.
17:30 – The problem with big IRAs & 401(k)s you don’t need. Qualified plans are great for saving, but can be very inefficient for estate transfer once your retirement is funded.
19:04 – The IRA-to-life-insurance strategy step by step. Dan walks through taking controlled distributions (e.g., $50K/year), paying the tax, and using the net amount (e.g., $30K/year) to fund a policy that can replace the million-dollar IRA value tax-free.
21:44 – SECURE Act & the 10-year rule. Why beneficiaries often must liquidate inherited IRAs within 10 years and what that means for their tax bill and planning.
22:49 – Using trusts & estate planning with life insurance. When to consider owning policies in a trust to avoid adding more to your taxable estate.
23:41 – Why planning must come before product. Dan and Dan close by emphasizing that insurance strategies need to be integrated into a broader financial and tax plan.

Episode Summary

This episode digs into where life insurance and tax planning intersect – and how to avoid turning your retirement accounts into a tax problem for your kids.

Host Dan Pascone is joined by independent insurance advisor Dan Wice, who has three decades of experience on both the carrier and advisory side. They start with the basics: for most young families, the single most important thing is cheap term coverage that replaces income, covers the mortgage, funds college goals, and protects the household’s lifestyle if a breadwinner dies prematurely. Relying on 2–3× salary through work is rarely enough – and that coverage often disappears when you change employers.

From there, they move into the more nuanced world of permanent insurance – whole life, universal life, indexed UL, and variable UL. Dan explains that each chassis simply reflects how the cash value grows (fixed, indexed, or market-based). The key is to let your goal drive the design: if you want permanent death benefit for estate or business planning, you focus on long-term guarantees and death benefit. If you want to build supplemental, tax-advantaged income and you’re already maxing employer plans, you focus on minimum death benefit and maximum funding.

The conversation then turns to long-term care. Many clients in their 50s have watched parents or relatives spend down assets or go on Medicaid to fund care. Dan outlines how hybrid life/LTC policies can provide a pool of dollars for long-term care needs while still leaving a tax-free death benefit if care is never needed – often funded using dollars you’re already planning to allocate for retirement or legacy.

The most advanced topic in the episode is how to handle large IRAs and 401(k)s you may never fully spend. Because qualified accounts are taxed as ordinary income on the way out – and the SECURE Act forces many non-spouse heirs to empty inherited IRAs within 10 years – they can be inefficient legacy tools. Dan describes a strategy where, in your 60s, you:

Begin taking planned distributions from your IRA/401(k) before or alongside RMDs,
Pay the taxes over many years instead of leaving a giant taxable account to your kids, and
Redirect the after-tax distributions into a carefully designed permanent life policy.

The result: your heirs may receive roughly the same (or even greater) value in the form of an income-tax-free death benefit, instead of a fully taxable inherited IRA they must drain on a 10-year clock. Along the way, you may also solve for long-term care and estate liquidity, especially if the policy is owned by a trust.

The episode closes with a reminder that insurance is not a standalone product decision. It needs to fit into a custom financial plan that coordinates cash flow, retirement, taxes, estate goals, and risk. Products are the last step, not the first.

Full Transcript

Dan Pasone: Brought to you by Tailored Wealth, helping business leaders live their version of a rich life.

Dan: Welcome to another edition of the Making Sense of Your Money podcast, where we cut through the financial noise and help business leaders make smart, confident money decisions. Welcome to episode number 23 of the Making Sense of Your Money podcast.

Dan: I’m your host, Dan Pasone. I’m the founder and CEO of Tailored Wealth. And each of our episodes features a trusted voice in the financial world, someone who works directly with high-level professionals to simplify the complex and turn strategy into action. And today, I’m really excited to have a special guest and an old friend, actually.

Dan: We’ve got with us Dan Wice. Dan is an independent insurance advisor and, in my opinion, one of the more knowledgeable folks in the insurance industry that I’ve come across. I’m excited to tap into that wealth of knowledge today. So Dan, thanks for joining us on the Making Sense of Your Money podcast. Good to have you, brother.

Dan Wice: Good to have you, good to see you. Thanks for having me on. Very excited to have a fireside chat without the fireside.

Dan: There you go. That works, that works. Let’s do that.

Dan: So we’ve got a lot to cover and our audience is going to want to hear a lot about what you do. But just give us a quick 90-second overview of what you do, what your business does, who you serve, and maybe a little bit of your background and how you got into the space.

Dan Wice: Absolutely, thanks. So I use my 30 years of industry experience – the last 15 or so have been on the retail side of the business. I’m an independent insurance advisor focusing on the risk management aspect of the financial planning process.

Dan Wice: I partner with financial advisors, trusted estate attorneys, financial people that are in the accounting side – the CPA world, matrimonial attorneys – anyone that really could impact or have a client that is in need of some type of risk management strategies. Whether they’re earlier on in life or approaching retirement.

Dan Wice: And I’m independent in the sense that I can work with over 40 different insurance companies and bring a solution that is customized and fit. I never come into a conversation with any fixed agenda or any fixed solution that I think someone might need without asking lots of questions and educating them on what’s available in the insurance world to help them meet their goals.

Dan: Yeah. Great summary and I can speak from personal experience because at Tailored Wealth, we’ve utilized Dan’s services for several of our clients where we felt like his expertise would be valuable in helping us find the right risk management solutions.

Dan: Let’s talk a little bit about the end client. Whether you’re engaging with a wealth manager, an attorney, a CPA – whatever the case may be – tell us a little bit about what the ideal end client looks like for you, and then walk us through your process in helping them get the right risk-management solutions for themselves, their family, their life.

Dan Wice: Absolutely. I spend a lot of time with whoever the advisor is that’s bringing me into the conversation, asking a lot of questions about the client or couple I’m working with. Where are they in life? Are they newlyweds who just bought their first home, having children, maybe moved to the area, just got a new job, and are looking to protect their family from that “god forbid” event early on in life – more from an income replacement need?

Dan Wice: Or are they in their late 40s to early 60s, where they kind of see the light at the end of the tunnel for retirement? They know they’re going to get to where they need to be, but what could trip them up along the way? Usually in their 50s to early 60s we’re talking about a long-term care event – what could force them to spend down their nest egg.

Dan Wice: Perhaps it’s the client that is fortunate enough to have a high net worth and needs estate planning and tax planning to create liquidity when they pass, so their heirs and anyone else involved have the cash to settle the estate.

Dan Wice: It might be someone going through a divorce who’s never had to deal with their finances before. Now they’re having to reinvent themselves and never had a need for insurance – and suddenly they do. It can be both sides of the coin: one spouse now going back to work, or the spouse who has a new financial obligation and part of the settlement is a requirement to keep life insurance in place.

Dan Wice: Often overlooked is disability coverage. A lot of people have disability through work, but they’re making significant income. So we talk about alternative strategies there as well. It really is anyone and everyone who goes through a life-changing event that creates an opportunity to bring me into the equation.

Dan Wice: I call it doing a “forensic review” of what they currently have. It starts with a simple question: when’s the last time you reviewed your insurance coverage? And that can go in a number of directions.

Dan: Very good. That’s a great baseline.

Dan: I want to talk about two different typical customers for you. We’ll start with the simpler one. I think most consumers and investors think about life insurance as a way to protect your family. Let’s start with that traditional use case, and then we’ll talk about some advanced planning. What are the things you’re looking for when evaluating the right coverage, right carrier, right needs for, say, a young and growing family with pretty sizable income that just wants to protect the family?

Dan Wice: Absolutely, and that’s really the majority of who I talk to – the younger clients. And “young” can mean different things, but typically it’s that younger couple that’s had some events: they have children, bought a house, got a new job, and have never really been asked about what they have for life insurance.

Dan Wice: Usually the response is, “Well, I checked the box during my benefits enrollment and I’m getting two or three times my salary, so I’m good.” They don’t realize that if they leave that job, or the company changes the benefits package, that coverage can disappear or be inadequate. Could their family really survive on one to two times their salary if something happened?

Dan Wice: So we ask a bunch of questions: Do they have college savings in place? Do they have a mortgage? Is their spouse working or not? How many kids do they have? Are they planning on more kids? All of those factors help us determine whether 10 years of coverage or 30 years makes sense, and what multiple of their income will actually allow their family to live comfortably without a drastic change in lifestyle.

Dan Wice: That’s where we do a lot of education and also emphasize that there’s no “right” or “wrong” answer – it’s unique to everyone. I’ve met couples who have college fully funded, no mortgage, great income, living within their means – their need looks different from someone with no college savings, a huge mortgage, and lifestyle spending that’s beyond their income.

Dan Wice: Sometimes we ladder term insurance – a 10-, 20-, and 30-year term – so they have the bulk of their coverage in the next 10 years and then some of it falls off over time to manage cost.

Dan Wice: I often find it’s a lot less expensive than people think. Many have no idea what life insurance actually costs. We go out to the marketplace and find competitive options.

Dan Wice: We also have to talk about underwriting – because it’s life insurance, we have to ask health questions and dig into anything that might impact underwriting. There can also be hobbies: flying, skydiving, motorcycles, etc. Again, I go out to over 40 carriers to see who will look at that situation most favorably.

Dan Wice: And I never go into the conversation saying, “Here’s what you need,” before I learn their full picture.

Dan Wice: I also get brought in because they’ve been pitched a solution from someone else – often a whole life policy that doesn’t really suit their need. That’s maybe the next part of our conversation.

Dan: Yeah, I actually want to dig into that because you transitioned right where I was going.

Dan: I hear a lot of, “I’ve been pitched an insurance policy,” and that can give the industry a bad rap. Break down the main types of life insurance in the marketplace and then give a quick overview of when each might be appropriate. That way listeners can get a sense of whether they just got pitched for commission or whether it truly might fit their broader plan.

Dan Wice: Absolutely – and this is a conversation I have at least once a day.

Dan Wice: A lot of insurance agents – and I say “agent” deliberately – represent one company and have a sales manager looking over their shoulder at their numbers. I don’t have that. Yes, I set my own business goals, but no one is barking over my shoulder telling me, “Sell whole life, sell permanent. It pays more than term.”

Dan Wice: A lot of agents do lunch-and-learns at companies, cold call, and try to sell someone a whole life policy without asking what else they have going on. They’re working in a silo. They don’t ask about the client’s financial advisor or broader plan. They push a permanent policy that may not fit.

Dan Wice: At a very high level, there are two main types of life insurance. There’s term insurance, which is the least expensive, temporary coverage – 10 to 30 (sometimes 40) years. There’s no benefit unless, unfortunately, you need it. The value is that it protects you in the most economical way. That’s probably what 95% of people who need life insurance could and should use.

Dan Wice: On the other side is permanent insurance. Under that umbrella you have many different products. Just like investments: you can be conservative, moderate or aggressive. In insurance, on the permanent side, you have whole life – the most conservative approach, typically from mutual companies that pay dividends and share profits with policyholders. It’s predictable; we can look at an illustration and say with almost certainty what it’s likely to look like 10, 20, 30 years from now.

Dan Wice: Then you have universal life, indexed universal life (IUL), and variable universal life (VUL). The difference is how the cash value inside the policy grows over time – fixed interest, index-linked, or invested in subaccounts similar to mutual funds.

Dan Wice: The key with permanent policies is how you structure them. If you want permanent death benefit – for estate planning, business planning, succession planning, leaving a set amount to heirs – then you focus on getting the most death benefit for the least premium. You don’t care as much about cash value.

Dan Wice: If instead you want to take advantage of the way life insurance is taxed, you design it more like a Roth alternative. You use after-tax dollars to build cash value with the intention of taking tax-free income down the road. In that case you want the least amount of insurance legally allowed and as much premium as possible to grow cash value.

Dan Wice: The problem is a lot of marketing around “life insurance as retirement plan,” “LIRP” and so on. Those designs often buy too much insurance and don’t fund enough premium, so later in life – 70s, 80s – the cash value gets depleted by rising insurance costs.

Dan Wice: If you do it right, you buy the minimum amount of death benefit to maximize the cash value buildup. But again, that should only happen after other boxes are checked: 401(k), IRA, 529s, emergency funds, etc.

Dan: That’s why we believe the initial engagement with any client is a custom financial plan. That needs to be in place before any product, solution, or investment is even discussed.

Dan: Let’s dig into some of the more advanced strategies at a high level, because insurance can be a very tax-efficient vehicle and can be used in estate planning. Give us a few strategic ways insurance is used by higher-net-worth people beyond simple protection.

Dan Wice: Absolutely. The permanent solutions can be used for estate planning at the federal or state level – or simply for wealth transfer. I spend a lot of time with people who have maxed retirement accounts, funded 529s, are living within their means, and still have money left at the end of the year that they’d love to earmark for retirement.

Dan Wice: If they could do a Roth IRA but can’t because of income limits – and the $7–8K Roth IRA limit isn’t that meaningful for them anyway – we can build a properly designed permanent policy to build tax-advantaged cash value that can be accessed tax-free later, very similar to a Roth in concept.

Dan Wice: Another big area right now is using life insurance to address long-term care needs. Many people in their 50s have watched parents or grandparents go through a long-term care event and either self-insure, spend down assets, or go on Medicaid. They come to us and say, “I don’t want that.” We can create a strategy using hybrid life/LTC products to protect their retirement assets and provide a pool for care.

Dan Wice: The other strategy I’m using a lot is for clients who have more wealth than they ever envisioned – maybe through real estate, business sale, stock options, whatever it might be – and they also have a large qualified plan they’re not going to need for retirement spending.

Dan Wice: A qualified plan – 401(k), 403(b), IRA – is one of the most inefficient vehicles for wealth transfer. You got all the tax benefits on the way in, but on the way out, every dollar is taxable as ordinary income. And if you die with that asset, your beneficiaries are the ones paying the tax.

Dan Wice: So we talk about a strategy: while you’re still relatively young and insurable, instead of waiting until age 73 (soon 75) to start required minimum distributions, you start taking distributions in your 60s. You manage the tax liability over time, and instead of converting to a Roth, you use that after-tax money to fund a life insurance policy that will pay out tax-free to your beneficiaries.

Dan: Let’s unwrap that a little bit, because that’s a concept I get asked about fairly often.

Dan: For those listening, RMDs – required minimum distributions – are on your qualified plans. For most folks that’s a 401(k) or IRA or 403(b). You have to begin taking money out at 73 today, likely going higher.

Dan: You’re saying instead of waiting until then, let’s start taking withdrawals earlier, maybe in their 60s. We’ll pay the taxes – because the money hasn’t been taxed yet. What happens from an insurance perspective with that money?

Dan Wice: Right. A Roth conversion is one option – take the money out of the IRA and put it into a Roth IRA. But if you take out $50,000 and convert it, you still pay tax on the full $50,000 and need to cover that from somewhere else.

Dan Wice: What I often recommend instead is: take out the $50,000, withhold taxes, and let’s say you net $30,000 after tax. Then use that $30,000 as premium into a life insurance policy. The goal is usually to buy enough death benefit to match or exceed the value of the qualified account – say a million-dollar IRA – with a million-dollar tax-free life insurance death benefit.

Dan Wice: So if you have a million-dollar IRA, we figure out how much premium is needed each year to buy that million-dollar tax-free death benefit. You can control the tax impact by spreading distributions out, maybe doing some tax-loss harvesting elsewhere to offset it. But you’re essentially doing a “Roth-like” conversion into life insurance.

Dan Wice: The question I get is, “Wouldn’t I be better off just moving the money to an S&P 500 index fund?” The answer is: maybe, if you live another 30–40 years. But what if you die in 5, 10, 15 years? With life insurance, the death benefit exists from day one. Your beneficiaries receive the full benefit tax-free, instead of a partially depleted IRA that’s fully taxable.

Dan: So for those following along: if I’ve got a million-dollar IRA and take $50K/year out, I’ll pay tax so maybe I net $30K/year. I then fund a life policy with that $30K/year that’s structured to provide around a million-dollar death benefit.

Dan: If I pass away, the IRA is a fully taxable asset to my heirs – but the life insurance proceeds are not taxable. So I’ve essentially converted a taxable asset into a tax-free one over time.

Dan Wice: Exactly. And another wrinkle people forget: the SECURE Act changed the rules on inherited IRAs. In the old days, if I inherited my dad’s IRA, I could stretch those distributions out over my life expectancy.

Dan Wice: Now, for many beneficiaries, you have to empty the inherited IRA within 10 years. So if my father leaves me that million-dollar IRA while I’m in my peak earning years, I may delay taking from it – and then at year 10, I’m forced to take a huge taxable distribution that bumps me into a higher bracket. I might wind up with $500–600K net after tax, if I’m lucky.

Dan Wice: By planning ahead, starting distributions earlier, and using life insurance as the receiving vehicle, we can make that wealth transfer far more efficient and tax-friendly.

Dan Wice: Sometimes we also have to consider estate tax. Life insurance itself can create more estate value. So depending on the size of the overall estate, you might want an estate planning attorney to set up a trust to own that policy, so you’re not adding more to the taxable estate. We don’t know where exemption amounts will be in the future; they’re likely to change several times over the next few decades.

Dan: We might learn some things this weekend on all that, actually.

Dan Wice: Exactly – it’s always moving.

Dan Wice: The last point is that the same structure can also fund a long-term care solution. If someone was on the fence about long-term care, we can use that repurposed IRA money to fund a hybrid life/LTC policy, solving both legacy and LTC with the same dollars.

Dan: Very cool. Thanks for sharing – you’ve clearly got a ton of knowledge here.

Dan: My quick summary and advice to listeners would be: insurance can be complex, especially once you get outside of traditional term. That doesn’t make it bad – but it cannot be sold to you in a vacuum. You need a comprehensive plan looking at all aspects of your finances and your goals before deciding if a strategy like this is right.

Dan: Dan, we’re going to shift gears a bit and get to know you better. We’re entering into my favorite segment of the podcast – the lightning round.

Dan: Here’s the deal: I’m going to ask you a question, and I just want the first thought that comes to mind. It could be a one-word answer or a longer thought – whatever works.

Dan: You ready?

Dan Wice: Sounds good.

Dan: Coffee or tea?

Dan Wice: Coffee every day. Have to have it.

Dan: One meal for the rest of your life – what is it?

Dan Wice: Oh… I love steaks, but I’m trying to eat healthier these days. So a nice robust salad with some blackened grilled chicken on it.

Dan: That sounds good. I can get behind that.

Dan: What’s one tool or piece of technology – hardware or software – other than your computer or your phone, that you can’t live without?

Dan Wice: I’ll hold it up right here, and I wish I got commissions for it. It’s called the Remarkable. It’s an electronic notebook that’s saved my life.

Dan Wice: In the insurance world I used to have tons of paper. Now I take all my notes right here. I have the dreaded lefty handwriting that I can’t read, so instead of scribbling things out in a notebook, I can write and erase. Someone can send me a PDF, I download it, sign it, mark it up, email it back. It’s been a lifesaver and made me much more efficient.

Dan: Very cool. I’ve actually bought that as a gift before and got good feedback.

Dan: Do you have a favorite quote or phrase about money or success?

Dan Wice: I’m trying to think of one… I say this a lot in what I do: you’re never younger and healthier than you are today. It’s human nature to procrastinate, but with what I do, it’s important to act sooner rather than later. I can’t tell you how many conversations I’ve had where, by the time someone is ready, it’s either too expensive or they’re no longer insurable.

Dan: Well said.

Dan: Do you have a favorite book on finance or business?

Dan Wice: I haven’t read anything recently, but back in my days at a firm called Wood Logan we’d get a lot of good books. I remember reading The Great Boom Ahead by Harry Dent – that was interesting. He was talking about Dow 30,000 back then, and here we are. You see thousand-point swings and it’s barely a blip.

Dan: Yeah, not as dramatic as it sounds.

Dan: One bucket list item you’ve already accomplished?

Dan Wice: Getting into shape and working on my health. I was so focused on work and family that I let it slide. About seven or eight years ago I said, “You’re not getting any younger. It’s time to live healthier, be more active.” I’m a tennis player, mountain biker, I like to exercise and eat better.

Dan Wice: I lost 55 pounds at one point and vowed I’d never go back to that weight. I want to travel more too. From a career standpoint, becoming my own boss and going independent – moving away from the corporate world – was a bucket list item I didn’t know I had, but now that I’ve done it, I’m very grateful.

Dan: I can relate to that.

Dan: Last one: if you could give one piece of advice to your younger self, what would it be?

Dan Wice: Get out of your comfort zone. Take advice from people who’ve been successful in whatever business you’re in. Network. Go out for coffee, lunch, happy hour. Interview people about what’s working for them and then emulate that and build it into your day-to-day practice.

Dan: Love it.

Dan: And lastly, if our listeners want to connect with you, collaborate, or work with you, what’s the best way to reach you?

Dan Wice: My cell phone is the best way: 914-494-7929. Or shoot me an email at [email address from the show]. I’m on LinkedIn – connect with me, send a message. Always open to Zoom, lunch, coffee – and to talk through things.

Dan: I love it.

Dan: Dan, thanks so much for sharing your insights today. This was super valuable. I know I learned a bunch and I’m sure our listeners did as well.

Dan: That’s it for our episode. As always, prioritize your version of a rich life. Cheers everybody.

Resources & Citations

IRS Publication 590-B – Distributions from Individual Retirement Arrangements (IRAs). Explains the tax treatment of IRA distributions, including required minimum distributions and beneficiary rules.
SECURE Act overview. Summary of key changes affecting retirement accounts, including the 10-year distribution rule for many non-spouse beneficiaries.
Basic guide to term vs permanent life insurance. Consumer-friendly explanation of term, whole life, universal life and variable universal life, including pros and cons.
Long-term care & hybrid life insurance. Educational resources on using life insurance policies with long-term care riders or linked-benefit designs to address care expenses.
Wealth transfer with life insurance. Estate planning materials that illustrate using life insurance to provide tax-efficient liquidity for heirs and estates.

FAQs

When is simple term life insurance enough?

For most young families, term life is the right starting point. If your primary goals are to replace income, cover the mortgage, protect young children and avoid a forced lifestyle change, term can usually deliver a large death benefit at a low cost. Permanent insurance only becomes relevant once your basic protection needs are met and you’re engaging in more advanced planning, such as estate strategies or tax-advantaged supplemental income.

Why might I consider permanent life insurance instead of just investing more?

Permanent insurance isn’t meant to replace traditional investing, but it can offer unique benefits: guaranteed lifetime coverage, potential tax-advantaged cash value growth, optional long-term care riders, and an income-tax-free death benefit. High earners who have already maxed out 401(k)s, IRAs, and other vehicles sometimes use properly designed permanent policies as part of a broader tax and estate strategy – especially when they want to reposition assets for legacy or long-term care.

What makes IRAs and 401(k)s inefficient as inheritance tools?

Traditional qualified accounts are funded with pretax dollars and grow tax-deferred, but that means every dollar your heirs withdraw is taxed as ordinary income. Under current rules, many non-spouse beneficiaries must empty inherited IRAs within 10 years, which can push them into higher tax brackets. That combination often makes qualified accounts a relatively poor way to leave wealth compared to life insurance death benefits or other after-tax assets.

How does the IRA-to-life-insurance strategy actually work?

The basic idea is to start taking planned distributions from your IRA or 401(k) while you’re still insurable and before or alongside required minimum distributions. You pay the tax on those withdrawals over many years, then use the after-tax dollars to fund a permanent life insurance policy designed for maximum long-term benefit. If structured correctly, the policy’s death benefit can approximate or exceed the original account value and be paid to your heirs income-tax-free, while you still maintain flexibility and possibly secure long-term care protection.

Is this kind of planning only for the ultra-wealthy?

No. While very large estates are more likely to need trusts and complex structures, many upper-middle-income and high-earning professionals can benefit from coordinating insurance and tax planning. If you expect to have more in retirement accounts than you will realistically spend, or if you’re concerned about long-term care and legacy, it may be worth exploring how life insurance could fit into your broader plan – even if you’re not ultra-high-net-worth.

How do I know if a permanent policy I was pitched is actually designed well?

Red flags include: not having a comprehensive financial plan first, focusing mainly on the death benefit instead of your goals, no discussion of policy funding levels, and no explanation of how the policy performs under different scenarios. A well-designed policy is built around your objectives (legacy, tax-free income, LTC, estate liquidity), uses conservative assumptions, and is reviewed periodically. A second opinion from an independent advisor or planner can be extremely valuable.

Disclaimer

This episode and page are for educational and informational purposes only and do not constitute financial, tax, legal, or insurance advice. Insurance and tax strategies discussed are general in nature and may not be appropriate for your specific situation. Life insurance products involve fees, expenses, and underwriting requirements, and policy performance is not guaranteed unless explicitly stated in the contract. Always consult your own financial advisor, tax professional, estate planning attorney, and licensed insurance professional before implementing any strategy involving life insurance, IRAs, or other retirement accounts.

Next Steps

If you’re a high-earning professional or approaching retirement with significant balances in IRAs or 401(k)s, now is the time to decide whether those accounts are primarily for your own spending or for legacy. Consider doing a coordinated review of your life insurance coverage, beneficiary designations, and projected RMDs to see whether an IRA-to-life-insurance strategy or hybrid long-term-care solution could improve your family’s after-tax outcome.

When you’re ready to explore how insurance and tax planning fit into your version of a rich life, dive into more episodes and resources at Making Sense of Your Money, or learn how Tailored Wealth partners with equity-rich professionals and leaders at yourtailoredwealth.com.