Minimize the Impact of RMDs on Your Clients' Legacy

As clients live longer, could RMDs disrupt plans to leave a legacy? An Enhanced Death Benefit might be the right tool to help keep them on track.

Different clients have different goals. Whether it’s an accumulation goal or the goal for ensuring protected lifetime income – ultimately, most clients will need to start taking Required Minimum Distributions, or RMDs, from qualified retirement accounts, when they hit age 72.

“Benjamin Franklin said it first. ‘Nothing can be said to be certain, except death and taxes.’ Mr. Franklin didn’t know about RMDs.”

But what if their goal is to leave a financial legacy behind? How might RMDs impact that goal? Those RMDs could potentially disrupt your clients’ plans for leaving a legacy, especially if they live beyond their life expectancy.

Death, taxes and RMDs

Benjamin Franklin said it first. “Nothing can be said to be certain, except death and taxes.” Mr. Franklin didn’t know about RMDs.

As your clients’ qualified retirement accounts grow tax-deferred, eventually Uncle Sam will want his share. And the only way he can get it is in the form of taxes when money is withdrawn from those accounts – hence “Required” minimum distributions. That’s the trade-off. And, if your clients don’t withdraw the amount determined by the IRS, they will be penalized with a 50% excise tax on the amount not taken. Either way, the government gets its money.

How RMDs could impact clients with annuities

Clients with annuities that qualify for RMDs might not like the resulting reduction in contract value, especially if they don’t need the income and were hoping to use their annuity to leave behind a legacy. Typically, the remaining contract value of an annuity is passed onto beneficiaries as the standard death benefit. However, given the impact of RMDs, it’s quite possible little contract value might remain – resulting in little to leave behind.

How to minimize the impact of RMDs on a legacy

There may be a better strategy to offer clients looking to leave a legacy. ForeAccumulation is a fixed index annuity that features an RMD-friendly approach to leaving a legacy in the form of an optional Enhanced Death Benefit (EDB). For an additional cost, ForeAccumulation offers guaranteed growth of a death benefit value that is separate from the annuity’s contract value.

Initially, ForeAccumulation’s EDB value is based on the annuity’s original premium. It then grows by a guaranteed 7% every year for up to 15 years (assuming no withdrawals) separately from the contract value. Upon death, beneficiaries get either the EDB value OR the annuity contract value as a death benefit^1,2 — whichever is greater.

An Enhanced Death Benefit in action

Watch this video to see how ForeAccumulation and the growth of an EDB could help offset the impact RMD withdrawals may have on a contract value. This video uses a hypothetical illustration of a $100,000 initial premium, at the issue age of 70, assumes 0% interest crediting and an EDB value increase of 7% simple interest for 15 years.^1,2

This hypothetical example reflects the ForeAccumulation fixed index annuity contract purchased at age 70 and selection of the Enhanced Death Benefit option. The optional EDB is available at an annual cost of 0.50%, assessed at the end of the contract year, based off of the Enhanced Death Benefit amount. The benefit will be comprised of a guaranteed roll-up of 7% simple interest for 15 years based off of premiums, reduced by withdrawals. All withdrawals will reduce the benefit. A minimum issue age of 0 and maximum age of 75 will apply. The hypothetical example assumes no withdrawals prior to age 72 and only the Required Minimum Distributions from age 72 on. Outcomes may differ based upon the interest crediting strategy selected and assume compliance with the product’s benefit rules.

Even with no interest crediting strategy and RMD withdrawals beginning in year 3 of the contract – the resulting EDB value after 15 years is $123,911 while the contact value is $35,719.

Maximizing a legacy with ForeAccumulation

A ForeAccumulation fixed index annuity does what its name suggests – accumulate assets based on a fixed rate or index-linked crediting strategy – while also providing protection against down-market losses.

But for those clients looking for more than just growth of their retirement nest egg, ForeAccumulation’s optional EDB could provide the legacy protection strategy they need, especially if RMDs are part of their concern. With a guaranteed growth opportunity like that, your clients might rest a little easier knowing that they’ve helped protect a legacy for their loved ones.

Learn more about ForeAccumulation fixed index annuity with an EDB option and see if it is a good fit for your clients