By Alan Jahde, JD, LLM (taxation)
Investors are often programmed to think it’s almost never a good idea to take early withdrawals from a retirement account. It’s the role of advisors to help them understand when it might actually make sense to take the funds and accept the tax liability.
In these scenarios, advisors often recommend that their client move to a Roth IRA and pay the tax upfront on conversion.
But awareness is growing about an alternative solution: a “stretch annuity.” This is an expanded use of a private placement variable annuity (PPVA), and it may allow ultra-high-net-worth (UHNW) families with significant retirement accounts to defer and stretch the tax bill over multiple generations.
Early withdrawals from retirement accounts may make sense for clients experiencing scenarios such as:
While Roth IRAs are commonly recommended by advisors for clients experiencing one of the above reasons for taking early withdrawals from retirement accounts, Roth IRAs have limitations that can be particularly troublesome for UHNW planning:
On the other hand, a stretch annuity solution can:
We detailed how a stretch annuity can be used for multi-generational wealth planning in our last blog.
We’re also available to talk with advisors about this innovative use of PPVA. Please reach out with any questions.