Could the “Rich Person Roth” Be Right for You?

By Alan Olsen
Could the “Rich Person Roth” Be Right for You?

How is the Tax Cut and Jobs Act treating you? While the law’s proponents promised huge tax savings for everyone, there are numerous taxpayers that are going to see a tax hike in 2018. That’s especially true for people who live in high tax states, like New Jersey, New York, and California. So what should these taxpayers do to overcome this increase? It’s all about tax planning. Any strategy you can find that will help you save on taxes you should consider using it.

Could This Be The Key to Tax Savings?

For example, opening up an IRA is one way to lower your tax bill; but not just any IRA. Of course, you’ve heard of the traditional IRA, and the Roth IRA. But what about the “Rich Person Roth?” Have you ever heard of that kind of IRA before? The Roth IRA offers tax-free income in retirement, because your contributions to a Roth are post-tax contributions. That means you’ve already paid taxes on them once. The bad news is many of the taxpayers most likely to be affected by the Tax Cut and Jobs Act don’t qualify for a Roth IRA because they earn too much. That’s where the “Rich Person Roth” comes into play.

The Rich Person Roth is built on the back of cash value life insurance. And it could be a great way for some high net-worth individuals to save on taxes and have more money for retirement. The reality is this tool is not exclusively available to the wealthy. But it might not be the right tool for everyone. If you have your finances in order and you’re already maxing out your tax-deferred accounts, like a 401(k), then adding permanent life insurance might be beneficial. This is the Rich Person Roth. This strategy can actually provide as much, or as little, tax-free income in retirement that you’re willing to save for.

Tax-Free Growth For Retirement

Again, this strategy is mainly for the wealthy, but it’s not exclusive to the ultra-wealthy. It could be beneficial to many high earners. Taking out an IRS-sanctioned cash value life insurance policy, aka a Rich Person Roth, allows you to grow that money tax-free and withdraw it tax-free. The longer you live, the longer these assets can grow in value.

Who Else Could Benefit?

The Rich Person Roth is also a good option for someone who is a little behind in the retirement savings game. It can also be helpful to anyone who is already maxing out all of his or her other possible retirement accounts. Furthermore, those that want to pay the least amount possible in taxes on their retirement savings might also find the Rich Person Roth helpful. The Rich Person Roth is not perfect. There are some possible drawbacks. But for anyone that falls into one of these categories, it can be an effective strategy to reduce your tax bill and have more available income in retirement.