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Can I Transfer Funds From A 401k To Life Insurance? | IBC Global, Inc - YouTube
Channel: Insurance Business Concepts (IBC) Global
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okay so we have a commonly asked question聽
which is can I transfer money from a 401k聽聽
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or a qualified plan into a life insurance policy聽
and bypass the tax can I roll it over while doing聽聽
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it and then use the money in the life insurance聽
policy tax-free the answer is no unfortunately so聽聽
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whenever we're going to pull money from any type聽
of qualified plan a 401k and IRA that distribution聽聽
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is taxable so in order to actually get the funds聽
into a life insurance policy couple options here聽聽
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one I can manually pull out the funds what that聽
means is if I have $100,000 in an IRA in a 401k聽聽
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if I pull out $25,000 that's going to be taxed聽
as ordinary income so example let's say my income
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is $100,000 I have a 401k
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I'm going to distribute 25k per year well what聽
will happen in this case is if my annual income聽聽
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is 100k I take a distribution of 25,000 that聽
401k no taxes have been paid so my income that聽聽
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year is now under $25,000 so when I manually take聽
distributions what I want to look at you always聽聽
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want to consult with your CPA tax attorney whoever聽
you use as as a specialist for this unless you do聽聽
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it on your own is how much income tax will be due聽
how much financial pain is going to be inflicted聽聽
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when I make that distribution this way I don't聽
pull the money out and then find out after the聽聽
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fact I've got to deal with this huge tax bill聽
now if we want to hands-off approach we can聽聽
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use an annuity a SPEA stands for single premium聽
immediate annuity so in a similar situation if I聽聽
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have $100,000 in a 401 K I can take that 100k and聽
I can roll it over or transfer it to an annuity聽聽
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now the annuity part of my poor handwriting is聽
transferred to the annuity that's a tax-free聽聽
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transfer transfer or rollover what is not tax-free聽
is then the annuity can then disperse money into聽聽
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the cash value life insurance policy as it does聽
that if it's going to disperse let's say it's聽聽
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gonna earn some interest to call it a total of ten聽
thousand five hundred per year for a total of ten聽聽
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years each distribution ten five I will have to聽
pay ordinary income tax on because the money came聽聽
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from that 401 K so that's where the takt taxation聽
is going to occur and then the last option聽聽
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leaving the 401k if we look at it and we simply聽
say hey with my situation right now it does not聽聽
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make sense to use the money in my qualified聽
plans to fund life insurance to do anything聽聽
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with because I'm in a higher tax bracket聽
doesn't make sense to pay the tax right聽聽
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now we leave it there and maybe we fund the聽
policy with something else and look at that聽聽
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later point being we want to weigh out all the聽
options pros and cons rather than just rather聽聽
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than just say hey here's a certain strategy let's聽
force it on you know we don't want to do that see聽聽
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what works see all the options and this way you聽
can make an educated decision hope this helps聽聽
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