Introduction:
In the world of retirement planning and estate management, qualified plans have always been a double-edged sword. While they offer tax-advantaged savings, they also come with a heavy tax burden, especially at the time of distribution and, more significantly, upon the death of the plan holder. This has led to the development of strategies to mitigate these tax impacts, commonly referred to as "pension rescue" programs.
Pension Rescue Programs
Traditionally, pension rescue programs involve purchasing life insurance within an eligible qualified plan, and then transferring or distributing the policy at a valuation discount, typically by sale or by distribution. Either way, there is a tax cost. For example, a distribution of the policy will trigger an income tax cost based on the discounted distribution value. And while there may be no immediate tax at the time of a sale, the sale proceeds remain in the plan where they will eventually be subject to taxation. Moreover, it's important to note that these approaches are not without their legal complexities and concerns, particularly regarding application of safe harbor valuation rules.
Nextpoint AI's QSFI Solution: A Safer Approach
Qualified SFI (QSFI) offers a refined approach to using pre-tax dollars for funding life insurance. Rather than purchasing a policy within a qualified plan, QSFI involves taking distributions from the plan upon which taxes are paid out of those same distribution amounts. The remaining funds are then used to purchase a life insurance policy within an irrevocable life insurance trust. And these premiums are supplemented by a third-party loan to replace the premium amounts lost due to tax payments. This results in 100% of the distribution amounts being used to fund a life insurance policy outside of the estate. In addition, the policy is only partially financed, so collateral requirements are minimal and early exit strategies are possible even at higher assumed interest rates.
Conclusion: The QSFI Advantage
In conclusion, Nextpoint AI's QSFI offers a groundbreaking yet ultra-conservative approach to managing the tax implications of qualified plans. By utilizing pre-tax dollars more efficiently and ensuring that life insurance policies remain outside of the estate, QSFI provides a robust solution for those seeking to maximize the benefits of their retirement plans while minimizing the impact of their tax burden. It's a sophisticated strategy that warrants careful consideration by financial advisors and plan holders alike.
Next Steps: How to Learn More
For more information on QSFI, please contact Nextpoint AI co-founders Chris Jacob, CFP or Robert Strauss, JD and request a link to Chris' recent Insmark Symposium presentation on the topic. Let us also demonstrate how our new patented Proforce AI software can be used to quickly re-project any QSFI or other advanced concept spreadsheet based on a change of assumptions. For more information about Proforce, please visit our information page at www.proforceledger.com.
Disclaimer:Â This article is for informational purposes only and is not intended as legal advice. Always consult with a licensed attorney or financial advisor before making any decisions regarding your financial planning or estate management.