Protection Products

Running Toward Tax-Deferred Money: Turning a Challenge into an Opportunity


What is it that we get spooked so easily by challenges? Something changes, or becomes a little difficult, and we prefer to complain, or just avoid the problem completely. 


Well, I believe inside every challenge lies an opportunity. Recently, I talked with Mike McGlothlin (Ash’s EVP of retirement and one of the most respected guys in the annuity business) about why so many advisors are running away from a certain challenge rather than running toward it. 


The challenge we discussed? Tax-deferred assets. I’m blow away by the number of advisors who have NO IDEA they can turn tax-deferred gains into tax-free benefits. Yes, you read that correctly. Tax-deferred into TAX-FREE. I’ll give you a couple examples of what I’m talking about. 


Linked Benefits

You can take an existing, nonqualified annuity and do what’s called a 1035 exchange, moving those funds into a linked-benefit product for long-term care. Your clients’ asset is leveraged into a larger pool of benefits, which are tax-free. We call this “transferring the risk” because you’re shifting the risk of long-term care expenses to an insurance company, rather than leaving that risk on your clients’ retirement assets (and subsequently taking a hit with taxes on their pent-up gain). 


Harvesting the Cost Basis

Non-qualified annuities are great accumulation vehicles for many reasons – multiple investment options, tax deferral and guaranteed income for life. However, a highly appreciated annuity is one of the worst assets to have on your personal balance sheet at death. Controlling the tax – the amount and the timing – is a critical factor to a successful legacy strategy. You need to have the conversation with all your clients about controlling tax at distribution, regardless if that comes during their lifetime or at death. 


Don’t Miss the Boat

By using these strategies, you’re accomplishing multiple things at once: 

  • You’re creating tax efficiency as their tax-deferred gain becomes a tax-free benefit
  • You’re creating a more meaningful/impactful result for your clients
  • You’re involving the next generation in the planning process, establishing trust and credibility and increasing your chances of keeping that AUM past the first generation 


If you’re avoiding your clients’ tax-deferred assets because you’re afraid of the taxes on their pent-up gains, then you’re missing the boat. Better yet, you should just get your own boat because this might be the next “blue ocean.”


Mike and I dove deeper into this topic during a webinar Sept. 21. If you client has ANY tax-deferred asset, you need to watch this replay.



For more, watch this 20-minute video with Tim and Mike McGlothlin explaining the topic in further detail.

Turning Tax-Deferred Into Tax-Free

Life Insurance Annuities Tax-Deferred Linked Benefit