David goes through five unique strategies to transform a $1 million inheritance into a tax-free asset.
Although a non-qualified inheritance is tax-free, the step-up in the basis rule will lead to a huge tax problem as your asset grows over time.
Strategy #1 – Pay the taxes on your Roth conversions. Remember, the worst way to pay taxes on a Roth conversion is on the IRA itself.
Strategy #2 – Max out your Roth 401K for you and your spouse. Use your earnings to max out the $60,000 limit for both you and your spouse, and use the inheritance to fund your lifestyle.
Strategy #3 – Fully fund your Roth IRA. Not a year should go by when you and your spouse are not fully funding your Roth IRAs.
Strategy #4 – Use the inheritance to fund your retirement. If you’re already retired, it may make sense to use the inheritance to support your lifestyle instead of going after your IRA.
Strategy #5 – Contribute money to a life insurance retirement plan. If you still have some money left after implementing the above four strategies, consider taking advantage of the flexible contribution limits of a LIRP.
David explains how you can productively grow your money in a LIRP tax-free.
According to David, if you inherit $1 million and leave the money in a taxable bucket, you will be paying taxes over the balance of your lifetime.
Mentioned in this episode:
David’s books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code
PowerOfZero.com (free video series)
@mcknightandco on Twitter
@davidcmcknight on Instagram
David McKnight on YouTube