The recently signed Pension Protection Act of 2006, the largest piece of pension legislation to pass Congress in 25 years, is a great opportunity for your clients to pass their wealth to their children or grandchildren in a way that may last for generations to come.
This Could be Your Perpetual Jackpot!
If you have pre-retiree or retired clients with large 401(k) balances, then you have potentially hit the jackpot! You have the opportunity to help your clients potentially avoid thousands of dollars in taxes, attract more of their peers and establish a meaningful relationship with their heirs that could lead to more clients, more profits without working any harder.
Many of your pre-retirees or retired clients have accumulated a lot of wealth over the years and they are looking for ways to: preserve their wealth over their lifetime, avoid as many taxes as possible and pass their wealth on to their children or grandchildren.
If you can help them meet these goals, then you have won their trust and confidence. Once you have their trust and confidence or more of it, then you will have more access to their “black book” of affluent family and peers. Having access is huge! It gives your clients' referrals an immediate sense of trust and confidence in your ability to do for them what you have done for their friends.
Now, the non-spouse rollover provision of the Pension Protection Act is the method in which you will help them reach their goals. Let's look a little more closely at the law:
Beginning in 2007, a non-spouse beneficiary who inherits your client's 401(k) or other company plan balance can transfer that plan balance directly to a properly set up inherited IRA that can be stretched over their lifetime. This also applies when trusts are named as the plan beneficiary. The transfer must be done as a direct rollover (trustee-to-trustee transfer) from the plan to an inherited IRA though. Before this, a non-spouse beneficiary who inherited a company plan would usually pay taxes on the entire inheritance in a few years and the stretch would be lost.
For non-spouse plan beneficiaries, this may be the biggest and best part of the new law. This single provision may allow non-spouse plan beneficiaries to stretch their wealth from inherited company plan funds in an inherited IRA over their lifetimes.
Now, the big benefit for your clients is the ability to pass on a greater amount of wealth that may be stretched over several generations and avoid income taxes associated with withdrawing their 401(k).
Taking Advantage of the Jackpot
You understand the opportunity for you and your clients and you have the means of achieving the opportunity, now are you ready to take advantage of it?
To get your fair share of the “opportunity pie,” you need to: (1) mine your database for pre-retiree and retired clients with large 401(k) balances ($150,000 and up), (2) prospect to boomers in newsletters and workshops and (3) don't be afraid to use this concept to differentiate yourself from others when talking to HR directors in small pension plans.
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