Did you hear the news? Stonewood software now allows you to vary your client’s tax rate assumptions in retirement.
So why should you do it?
Below are two ways to incorporate variable tax rates into your IRA-to-IUL conversion story – and how these changes could impact your client.
Expiration of the Trump Tax Cuts
In 2017, the President signed into law comprehensive tax reform, which lowered tax bracket rates for many savers. However, those lower rates are not permanent; In fact, they sunset in 2025. That means for many of your clients, taxes will go up during their retirement years.
Best Practice: Show your client’s tax rate rising in 7 years. A good rule of thumb is to show a 2% rise in their effective tax rate.
Bonus Idea: Since taxes are set to rise in 2025, we are currently in an artificially-low tax environment. If your clients are considering making changes to the tax status of their assets, they can do so today at a discount – but only if they act before the tax provisions expire. Use this to create urgency around this strategy.
Tax Rates for Heirs
When your client dies, his or her qualified account will be passed to heirs – but the tax status of those funds will not change. For a client’s children, that could mean inheriting the funds at peak earnings years when tax brackets are highest. For a surviving spouse, that means the spouse is now accessing retirement funds at a single tax rate, rather than a joint tax rate.
Best Practice: Show your client’s tax rate increasing at death as funds are passed on to a spouse or heirs. A good rule of thumb is showing a 2-4% rate increase for a surviving spouse, or an appropriate rate increase based on the heir’s tax liability.
Bonus Idea: This reality underscores why IRAs and 401(k)s are a flawed way to pass on a legacy. When you inherit a qualified account, you inherit the taxes and risks