76 • MARTIN H. RUBY
A Different Kind of Conversion You’re probably familiar with the concept of Roth conversions. This strategy has gained increasing popularity over the past dec- ade as more savers come to realize the Great American Savings Myth. It’s fairly straightforward: if you have money in a tax-de- ferred account but would rather have those funds growing in a tax-free account, you can “convert” your tax-deferred funds into tax-free funds. How? You withdraw funds from your qualified account, like your 401(k) or IRA. You pay taxes on the funds you’ve withdrawn, and you put the remaining amount into a Roth IRA or Roth 401(k) account, where they then grow tax-free. While Roth conversions are by far the most common approach, they are not the only option for converting your funds into tax- free assets. You can also do an IRA-to-IUL conversion, which is rapidly growing in popularity for the reasons outlined in this book. The concept is the same: you withdraw funds from your quali- fied account. You pay taxes on those funds, and you put the net funds in an IUL policy (usually over a few years, through premium payments). From there, the funds grow tax-free in the IUL policy, can be accessed for tax-free income, and pass on to your heirs, tax-free. That’s the approach I took. How Much to Convert? As I mentioned, my goal was to diversify the tax status of my retirement accounts, getting more funds into tax-free vehicles. My wife and I have several retirement savings accounts, but the largest is my IRA. We looked at our retirement funds and decided how much to dedicate to this strategy.
Made with FlippingBook - Online catalogs