Micah Hesting | Advisor Relationships/Business Development Strategist
From time to time, we come across married clients that have a large age disparity. In many cases, there is concern about taking care of the younger spouse once the elder has passed away. Let’s say we have a surviving spouse that is under age 59 ½ and inherits the deceased spouse’s 401(k). In this case, the surviving spouse needs income from these funds now and throughout retirement. What can we do?
Here is a three-bucket approach to address the situation:
With this three-bucket approach, we are using an immediate annuity, variable annuity, and a very conservative or cash equivalent account. When setting up these buckets, keep in mind that the titling of each account is very important. For example, distributions from inherited IRAs are not subject to the 10% tax penalty for premature distributions. Also, aside from one company, if you title your variable annuity as an inherited IRA rather than a spousal IRA or IRA in her own name, you cannot put a living benefit on the contract. Here are the buckets and titling:
• Bucket 1 for Income Now: The surviving spouse purchases an immediate annuity and titles it as a spousal inherited IRA.
• Bucket 2 for Income Later: The surviving spouse purchases a variable annuity with a living benefit titled as the surviving spouse’s own IRA to provide income after they turn 59 ½. Also, most contracts out there right now have age-banded distributions that pay a higher amount for life if the client can wait to take distributions until 65 or later. Keep this in mind when planning for the length of time you want income bucket 1 to last.
• Bucket 3 for Emergency Needs: To avoid disrupting the plan for income bucket 2, I would consider having a liquidity bucket in a very conservative or cash-equivalent account titled as a spousal inherited IRA for emergency income needs.
The target audiences for this strategy are married couples with a large age disparity or a client’s surviving spouse who is younger than 59 ½.
Contact Micah Hesting for more information:
Advisor Relationships/Business Development Strategist