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

Dan Wice is an independent insurance advisor with 30 years of industry experience, the last 15 or so on the retail side. He focuses on the risk management part of financial planning and can work with over 40 insurance companies. He says he never walks into a conversation with a fixed agenda or solution. Instead, he partners with financial advisors, estate attorneys, CPAs and matrimonial attorneys, asking lots of questions before suggesting anything. Dan Pascone says Tailored Wealth has used his services for several clients [VERIFY: describe Dan Wice's relationship with Tailored Wealth and any compensation, since his team page lists him as Insurance and Advanced Case Specialist].

Dan Wice says life events create the need. He starts with a "forensic review" of what someone already has, beginning with a simple question: when's the last time you reviewed your coverage? Common triggers include:

• Early family years: Newlyweds, a first home, children or a new job, where the need is mostly income replacement.
• Late 40s to early 60s: Retirement is in sight, and a long-term care event could force someone to spend down their nest egg.
• High net worth: Estate and tax planning that creates liquidity so heirs can settle the estate.
• Divorce: Someone reinventing their finances, or a settlement that requires keeping life insurance in place.
• Disability coverage: Often overlooked. Work coverage may not fit a significant income, so alternatives are worth a look.

Dan Wice says the common answer is, "I checked the box at benefits enrollment and I get 2 or 3 times my salary." The problem is that coverage can disappear if you leave the job or the company changes its benefits. He asks about college savings, the mortgage, whether a spouse works, how many children there are and whether more are planned. Those answers decide whether 10 years of coverage or 30 makes sense, and what multiple of income lets a family live comfortably. He stresses there is no single right answer.

Two practical points from the conversation: some people ladder term policies (10-, 20- and 30-year) so more coverage falls off as needs shrink, and many people find the cost lower than they expected. Underwriting matters too. Health history and hobbies like flying, skydiving or motorcycles can change pricing, so he shops across carriers to find who views a situation most favorably.

Dan Wice describes 2 main types. Term is the least expensive, temporary coverage, typically 10 to 30 (sometimes 40) years, with no benefit unless you need it. He says it is what about 95% of people who need life insurance could and should use [VERIFY: guest estimate]. Permanent insurance is an umbrella over several products, which he compares to conservative, moderate and aggressive investments:

• Whole life: The most conservative, typically from mutual companies that pay dividends. Illustrations are more predictable, though dividends are not guaranteed.

• Universal life, indexed universal life (IUL) and variable universal life (VUL): The difference is how cash value grows: fixed interest, index-linked or invested in subaccounts similar to mutual funds.

He says the design is what matters. If you want a permanent death benefit for estate, business or succession planning, you focus on the most death benefit for the least premium. If you want to use the way life insurance is taxed, as a Roth alternative, you buy the least insurance legally allowed and fund as much premium as possible to build cash value. He warns that marketing around "life insurance as a retirement plan" often buys too much insurance and funds too little, so rising insurance costs can deplete the cash value in your 70s and 80s. He says this should come only after 401(k)s, IRAs, 529s and emergency funds are handled.

Some general cautions: permanent policies carry fees and surrender charges, funding them too heavily can turn them into a modified endowment contract (MEC) with different tax treatment, and loans or withdrawals can reduce the death benefit or cause a policy to lapse. Guarantees depend on the claims-paying ability of the insurer. If you're comparing the tax angle with a Roth, see our piece on when a Roth conversion actually makes sense.

Dan Wice describes 3 uses beyond basic protection:

• Tax-advantaged supplemental savings: For people who have maxed retirement accounts and 529s, are living within their means and still have money left over. If income limits keep them out of a Roth IRA, and the $7,000 to $8,000 limit isn't meaningful for them anyway, he says a properly designed permanent policy can build cash value that may be accessed tax-free later, similar to a Roth in concept.

• Long-term care: Many people in their 50s have watched a parent or grandparent self-insure, spend down assets or go on Medicaid. Hybrid life and long-term care policies can create a pool of money for care while protecting retirement assets.

• Repurposing a large qualified plan: For people with more wealth than they will spend, a 401(k), 403(b) or IRA is, in his words, one of the most inefficient vehicles for wealth transfer. You got the tax benefits going in, but every dollar is taxed as ordinary income coming out, and your beneficiaries pay it.

For the basics of these accounts, see our guide to company retirement plans.

As Dan Wice describes it, the steps look like this:

1. Start taking planned distributions from the IRA or 401(k) in your 60s, while you're still insurable, instead of waiting for required minimum distributions (RMDs) to begin at 73 (he notes it's likely to rise to 75).
2. Withhold and pay the income tax on those distributions. He suggests spreading them out over time and offsetting some of the tax elsewhere, for example with tax-loss harvesting.
3. Use the after-tax amount as premium for a permanent life insurance policy, sized so the death benefit matches or exceeds the value of the account, such as a $1,000,000 death benefit for a $1,000,000 IRA.
4. If estate tax could apply, work with an estate attorney on a trust to own the policy, so the proceeds aren't added to the taxable estate.
5. If long-term care is a concern, the same dollars can fund a hybrid life and long-term care policy to cover both goals.

He contrasts this with a Roth conversion. Converting $50,000 still means paying tax on the full $50,000 from another source. In his example, you withdraw $50,000, net $30,000 after tax, and use the $30,000 as premium. He raises the common objection himself: wouldn't you do better putting the money in an S&P 500 index fund? His answer is maybe, if you live another 30 to 40 years. But if you die in 5, 10 or 15 years, the death benefit has existed from day one and generally passes to heirs income-tax-free, while an IRA is fully taxable to them.

He also points to the SECURE Act. Many non-spouse beneficiaries must now empty an inherited IRA within 10 years. If heirs inherit during their peak earning years, a large forced distribution can push them into a higher bracket. He suggests a $1,000,000 IRA might net heirs $500,000 to $600,000 after tax, if they're lucky.

Dan Pascone's summary in the episode was that insurance isn't bad, but it can't be sold in a vacuum. A comprehensive plan comes first. Before using a strategy like this, weigh:

• Costs and commitment: Premiums, fees and surrender charges. If you stop paying or the policy lapses, the premiums you paid may be lost.
• Health and underwriting: Coverage depends on your health and age when you apply. You may not qualify, or the price may be higher than assumed.
• Taxes now versus later: You pay income tax on distributions today, possibly at a higher bracket than your heirs would.
• Opportunity cost: Dollars used for premiums are no longer invested, and a long life with strong markets could favor leaving the IRA invested.
• Alternatives: Roth conversions, charitable giving of pre-tax assets, and other estate strategies may fit better.

Dan closes with quick questions. Dan Wice's answers:

• Coffee or tea: Coffee, every day.
• One meal for life: A robust salad with blackened grilled chicken. He loves steaks but is trying to eat healthier.
• Tech he can't live without: The reMarkable, an electronic notebook. He says it replaced his paper notes and lets him sign and mark up PDFs.
• Favorite quote: "You're never younger and healthier than you are today." He says that by the time some people are ready to act, coverage is too expensive or they're no longer insurable.
• Favorite book: The Great Boom Ahead by Harry Dent, which he read years ago.
• Bucket list item: Getting into shape. He took up tennis and mountain biking, says he lost 55 pounds, and calls going independent a bucket list item he didn't know he had.
• Advice to his younger self: Get out of your comfort zone. Learn from people who've succeeded in your field, network, and emulate what works.

3 things stand out from this conversation:

• Insurance is the last box, not the first: Dan Wice says permanent strategies should come after 401(k)s, IRAs, 529s and emergency funds. We'd add that a plan should come before any product. Ask what job the policy is doing before you ask what it costs.
• Pre-tax accounts are poor inheritance vehicles: The 10-year rule can turn a large inherited IRA into a taxable pile in the heirs' highest-earning years. Most people plan for their own retirement and never plan for who pays the tax afterward.
• Design decides the outcome: The same product can be built for death benefit or for cash value. A policy that buys too much insurance and funds too little can run out of steam late in life, so ask to see how it performs under conservative assumptions.

This is a hypothetical with assumed figures, for illustration only. It is not a projection, a recommendation or a client case. It ignores investment growth, inflation and required distributions to keep the arithmetic simple.

Say a healthy, insurable 62-year-old has a $1,000,000 traditional IRA she doesn't expect to spend. Assume her heirs would pay a combined 35% tax on what they withdraw.

• Path A, leave the IRA: Heirs inherit $1,000,000 and net about $650,000 after tax.
• Path B, repurpose part of it: She withdraws $50,000 a year for 10 years ($500,000 total). At an assumed 40% tax, $200,000 goes to tax and $300,000 ($30,000 a year) goes to premiums for a policy assumed to pay a $1,000,000 death benefit. Her heirs inherit the remaining $500,000 IRA, netting about $325,000, plus the death benefit, generally income-tax-free, for about $1,325,000 in total.

Path B only comes out ahead if the policy performs as assumed, she keeps it in force, and she doesn't need the money. The $1,000,000 death benefit for $30,000 a year is an assumption, since real premiums depend on age, health and product. The $300,000 in premiums is also no longer invested, so a long life could change the comparison. Ask for a stress-tested illustration and have your CPA and estate attorney review any plan like this.

We agree with the order of operations: plan first, product second. Life-Driven Planning, our 6-phase plan (cash flow, retirement and hybrid retirement, risk, expense and goal, tax, and legacy), is where insurance belongs, in the risk and legacy phases, alongside your tax picture. It's a living decision engine, not a binder. You can see what a real plan covers in our video on what a real financial plan includes.

We revisit these decisions in our Quarterly Strategy Rhythm, our ongoing plan updates and decision reviews, because health, tax law and estate rules change. We discuss Dan Wice's strategies here for education. This is not an endorsement or recommendation of any insurance product, company or strategy.

This conversation is for corporate executives and senior leaders in their 40s and 50s, with household income of $500,000 or more and complex compensation, who have maxed their retirement accounts, hold large pre-tax balances, or want to protect their family and heirs without taking on a product that doesn't fit their plan.

If you have a large pre-tax retirement balance, or you're weighing insurance as part of your legacy or long-term care plan, the order of operations matters. A free Wealth Strategy Call is a low-pressure conversation about your retirement, tax and estate picture. Book a free Wealth Strategy Call.