The Regulation You Need to Be Talking About


Recent news indicates a new U.S. Department of Labor rule will be set forth in the fall of 2019. But don’t be distracted. There’s another piece of legislation that needs your attention.

Pending tax reform, which will likely be addressed when Congress reconvenes in January, puts several tax benefits in question for retirees and their beneficiaries. And, some are critically important in the transfer of wealth.


The Great Tax Transfer

It’s estimated that trillions of dollars of wealth will pass to the next generation over the next two decades. It will come to the surprise of many beneficiaries, however, that most of their money will be taxed.

One of the changes that the Retirement Enhancement and Savings Act addresses is the ability to stretch qualified accounts at death of an IRA owner. It would limit the amount to just $450,000. Everything else would have to be received as a lump sum or within five years of the death of the IRA owner. This places a significant amount of tax due at the time of death.

As I travel around the country, I sense that the increased federal gift and estate tax exemption limits have lulled planners and their clients from looking at the income tax payable at transfer. That’s dangerous – they could be dropping an income tax bomb on their beneficiaries.


Defusing the Bomb

Like any obstacle, legislation can become an opportunity for the financial services community. There are several ways that you can position your clients – and their beneficiaries – to win, regardless of what happens in Congress.

  • With the lower tax rates introduced by the Tax Cut and Jobs Act of 2018, it benefits the client to convert qualified accounts to Roth IRAs. This allows the client to have tax-free income for retirement. At death, the proceeds are disbursed tax-free to beneficiaries as well.
  • The embedded gains in nonqualified annuities are treated as taxable distributions, and they are generally taxed on a last in, last out (LIFO) basis. This creates a great opportunity to take advantage of innovative income riders that allow the exclusion ratio to be used for tax purposes. More importantly, it allows the beneficiary to access the cost basis first at the death of the current annuity holder. That puts the beneficiary in control – not the IRS.
  • Finally, it’s always a great time to discuss the importance of life insurance with large IRA holders. It remains the most tax-efficient method to transfer wealth.


So, the government is likely to continue regulating the way we interact with our clients. But Congress is likely to have a larger impact due to the tax consequences on our income strategies. Focus on creating income that is efficient for both clients and their beneficiaries.


Winning Strategy

Don’t let the DOL distract you. Pay attention to regulation that can impact your clients’ future.


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About the Author

Mike McGlothlin is a team leader, retirement industry activist and disciple of Indiana Hoosier basketball. In addition to being EVP of retirement at Ash Brokerage, he is a sought-after writer and speaker. His web series, “Winning Strategies,” provides insight and motivation for financial advisors in many forms – blogs, books, videos, podcasts and more. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at


Retirement Regulation DOL Tax Transfer