I’ve recently decided to share a new feature in my weekly updates: real-life case studies straight from my client meetings. While general financial strategies are helpful, I find that looking at a real person's journey makes the planning process feel much more tangible. My hope is that these stories give you a clearer sense of how tailored planning can protect your hard work—and if a particular scenario strikes a chord, please feel free to share it with friends or family who might be facing a similar crossroads.
When a "Good Problem to Have" Becomes a Tax Trap for Your Kids
Imagine spending decades diligently growing a 401(k), hoping your kids will inherit whatever is left over as a head start for their own retirement. For a long-time client of mine—let’s call him David—this was the exact plan we began mapping out all the way back in 2013.
Then, Congress changed the rules.
With the passage of the SECURE Act, Washington completely shifted the landscape of estate and legacy planning. It eliminated the old "stretch IRA," which used to allow adult children to stretch out withdrawals from an inherited account over their own lifetimes. Instead, Uncle Sam introduced a strict 10-year rule: heirs are now forced to fully empty inherited traditional IRAs within 10 years of the passing of both parents.
The problem? Most adult children inherit these accounts right during their own peak income-earning years. Forcing a massive IRA to dump into their tax brackets over a short decade can trigger a brutal tax bill, effectively wiping out a massive chunk of their parents' hard-earned legacy.
The Game Plan: Beating the 10-Year Clock
David and I knew we needed to pivot. Our primary objective was clear: systematically convert his taxable pre-tax balances into a tax-free Roth IRA over the next nine years, up to our pre-determined tax bracket of 24%, finishing just before he reaches his Required Minimum Distribution (RMD) age of 75. Because Roth IRAs pass to heirs tax-free, this would completely neutralize the sting of the 10-year payout rule.
The challenge was finding a cost-efficient vehicle to fund those annual Roth conversions without exposing his principal to market crashes or eroding his kids' inheritance.
After a comprehensive market review, we found our answer with a highly ranked insurance carrier offering a specialized Registered Index-Linked Annuity (RILA). This specific contract features a unique, non-reducing death benefit—meaning the guaranteed legacy left to his kids won't shrink, even as we regularly withdraw money to fund the Roth conversions.
To maximize growth potential and keep costs razor-thin, we split David's portfolio exactly 50/50 into two distinct contracts:
Strategy | Contract 1: Pure Growth (50% of Portfolio) | Contract 2: Protected Income & Legacy (50% of Portfolio) |
Focus | Maximize tax-deferred compounding. | Generate conversion liquidity & protect the legacy. |
Fees | 0% fees. | 1.90% total rider fee. |
The Mechanics | Built as a 6-year term bucket tracking the S&P 500 with 105% market participation and a -10% downside protection buffer. | Same as Contract 1 but employs a Guaranteed Income Rider and an Estate Lock Rider. |
Strategic Role | Holds the assets David doesn't need immediate access to, letting them grow aggressively with a safety net. | The guaranteed income streams out yearly to fund his Roth conversions. The Estate Lock ensures that even as money leaves the contract, the original principal remains completely intact for his beneficiaries. |
The Bottom Line
By capping the 1.90% rider fee on only half of the total portfolio, David gets the exact amount of annual liquidity he needs to fund his Roth conversions without overpaying for benefits on the rest of his wealth.
The ultimate result? If the market booms, David captures the upside. If the market dips, his downside is insulated. Most importantly, his lovely wife is protected, and has taken steps to ensure that the core family legacy stays fully intact, passing seamlessly down to his children.
To your wealth and legacy,
Todd
Disclosure: This example is for informational purposes only and should not be construed as investing advice. Our firm does not provide legal or tax advice. Be sure to consult with your own legal and tax advisors before taking any action that may have tax implications. Annuities are complex products and not suitable for all investors. Any guarantees are subject to the claims-paying ability of the issuing insurance company.