Are You Using Your IRA for the Wrong Reason?

Using IRAs to hold wealth to eventually transfer to heirs is not the most efficient use of these financial vehicles because of the enormous tax consequences, according to financial planning professionals at American Skandia.  These investors stand to lose close to 75 percent of their assets in taxes to the government when IRA dollars are transferred to their heirs.

The survey polled 200 people in the age bracket of 50 and above.  Results showed: 71% have an IRA.  Of those with an IRA, 23.4% said they plan to use it to pass along to their children and fund retirement.  5.5% said they plan to use it solely to pass along wealth to their children.

"With the proper underlying investments, IRAs are great vehicles to accumulate wealth, but the money should be used during an investor's lifetime," said Patricia J. Abram, senior VP and National Sales Manager at American Skandia.

"Our poll indicated that despite the popularity of IRAs, many investors continue to use them for the wrong reasons," Abram said.  "With misunderstanding the best use of an IRA, investors risk exposing themselves to a hidden time bomb in the form of enormous taxes.  The unfortunate reality in many cases can amount to the federal government becoming a primary beneficiary, due to inefficient use of an IRA in an overall financial plan.

Investors can lose as much as 73 cents on every dollar they've saved.  To avoid this, the key to tax-efficient transfer of wealth is proper planning.  Variable life insurance as well as a number of financial products can ensure that an investor's wealth is not decimated before it reaches surviving heirs and beneficiaries.  Variable life insurance products are efficient vehicles for accumulating assets tax-deferred, depending on the performance of the underlying investment, and transferring them federal income tax-free to beneficiaries."

Many life insurance products today are specifically designed to minimize the impact of income and estate taxes.  Variable life insurance allows any earnings to grow tax-deferred -- free of income and capital gains taxes that can limit a portfolio's appreciation.  And, because the products are life insurance, the death benefit is passed to beneficiaries federal income tax-free.

"We are among the innovators on delivering solutions for the changing needs of American investors.  As a result, we are contributing to the changing views of consumers who have used life insurance as part of their financial planning," said Christian Thwaites, senior VP of marketing at American Skandia.

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