Jill on Money with Jill Schlesinger: Episode Summary – "Variable Annuity With Death Benefit"

Release Date: March 31, 2025
Host: Jill Schlesinger, CFP®
Guest: Dan from Seattle

Introduction to the Episode

In the March 31, 2025 episode of Jill on Money, host Jill Schlesinger delves into the complexities of managing retirement accounts and inheritance planning through a real-life listener scenario. The episode primarily focuses on Dan, a 70-year-old from Seattle, seeking advice on minimizing the tax impact of his traditional IRA for his children.

Listener's Financial Situation

Dan's Background: Dan begins by sharing his financial landscape following the passing of his wife a year and a half ago. Despite the loss, he reports being financially secure:

• Traditional IRA: $2.4 million
• Social Security: Approximately $35,000 annually
• Rental Income: Around $75,000 annually from five mortgage-free properties valued at $4.5 million total
• Brokerage Account: $3.5 million
• Dependents: Two adult children, ages 26 and 27, with one being financially stable and the other still requiring support.

Timestamp [02:51–11:23]

The Core Issue: Variable Annuity with Death Benefit

Dan introduces a proposal from his insurance agent regarding a Variable Annuity with Death Benefit aimed at managing Required Minimum Distributions (RMDs) and ensuring a death benefit equivalent to his purchase price. He expresses uncertainty about its efficacy and cost-effectiveness.

Quote:
"My insurance agent said, we've got this variable annuity with a death benefit that kind of guarantees that you've got a death benefit and it unencumbers your IRA obligations."
— Dan [03:08]

Jill's Analysis and Recommendations

Questioning the Annuity: Jill scrutinizes the necessity and benefits of the proposed annuity, highlighting potential high fees (~2% annually) that could erode Dan’s substantial assets without providing significant benefits.

Quote:
"There's no real reason that you would have to pay 2% a year to an insurance company. Your kids are going to get plenty of money."
— Jill Schlesinger [07:30]

Alternative Strategy – Converting to Roth IRA: Jill advocates for converting portions of Dan's traditional IRA and brokerage accounts into Roth IRAs. This strategy would allow the assets to grow tax-free and provide heirs with a tax-advantaged inheritance, leveraging the step-up in cost basis upon death.

Quote:
"Why not just convert some of the traditional IRA with the money that you have in the brokerage account?"
— Jill Schlesinger [07:08]

Tax Implications and Planning: Jill emphasizes the importance of addressing taxes proactively. By converting to Roth IRAs, Dan can manage his current tax bracket more effectively, especially since Washington State does not impose state income tax. This conversion would minimize the tax burden on his children when they inherit the accounts.

Quote:
"The way that you can minimize the tax hit in the future for your kids is to pay for the tax now."
— Jill Schlesinger [10:25]

Estate Planning and Charitable Giving: While discussing charitable inclinations, Jill introduces the concept of Qualified Charitable Distributions (QCDs). Although Dan is hesitant about donating to charities, Jill suggests researching efficient charities through platforms like Charity Navigator or GiveWell to ensure maximum impact with minimal administrative overhead.

Quote:
"You can start to say, like, hey, what are charitable organizations that I like that don't have, you know, all the money going to overhead."
— Jill Schlesinger [11:22]

Key Insights and Takeaways

1. Evaluate Financial Products Critically:
   Before committing to financial products like annuities, it's crucial to assess their fees, benefits, and how they align with your overall financial strategy.

2. Leverage Roth IRA Conversions:
   Converting traditional IRAs to Roth IRAs can be a strategic move to provide tax-free inheritance to heirs, especially when anticipating a high tax environment or significant asset growth.

3. Understand RMDs and Their Implications:
   Required Minimum Distributions can be managed more effectively through strategic planning, ensuring assets are utilized in a tax-efficient manner.

4. Consider Comprehensive Estate Planning:
   Beyond retirement accounts, evaluating all assets, including real estate and brokerage accounts, is essential for a holistic estate plan that benefits both the individual and their heirs.

5. Charitable Giving as a Flexible Option:
   Even if not actively inclined towards philanthropy, incorporating charitable giving through efficient channels can provide tax benefits and fulfill personal or familial values.

Conclusion and Final Advice

Jill wraps up the episode by reiterating the importance of personalized financial planning. She encourages listeners to consult with their accountants to tailor strategies that fit their unique circumstances. Jill also invites listeners to reach out with their financial questions and engage with the Jill on Money community for ongoing support and resources.

Quote:
"Use your money. Spend a little more money, will you?"
— Jill Schlesinger [12:25]

Notable Quotes with Timestamps

• "Security doesn't come in the form of an insurance product that costs me 2% a year."
  — Jill Schlesinger [07:30]

• "The way that you can minimize the tax hit in the future for your kids is to pay for the tax now."
  — Jill Schlesinger [10:25]

• "I think that inherits a Roth asset for your kids is a beautiful gift and it's a clean gift."
  — Jill Schlesinger [08:36]

Additional Resources

For more information and personalized advice, listeners are encouraged to visit jillonmoney.com, where they can access blogs, radio shows, videos, and subscribe to the free weekly newsletter. Additionally, premium content and live webinars are available through the Jill on Money Live subscription service.

This episode of Jill on Money provides valuable insights into efficient retirement planning and inheritance strategies, emphasizing the importance of informed decision-making and personalized financial strategies.