401K IRA's savings ROTH IRA

Retirement Planning Income
Services in the Villages, FL

On this page we will take a look at how to move the assets of a 401K and IRA.  And how to maximize the asset.  Both have had a free ride from taxation until you reach the age of 70 1/2.   Then the IRS wants their money.  That’s unavoidable.  But there are ways to minimize the effect.

401K  &  IRA  plans have been embraced by Americans for the ability to set aside pre-tax dollars.  The Employer sponsored  plans are a way to prepare for one’s retirement.  They were created in the Early 70’s because the funding of Defined Benefit plans across the nation were in financial trouble. Follow the link above for a short history that created the IRA and ERISA.

As employers pulled away from the Defined Benefit  ( DB ) programs, the replacement was the 401(k).  On an individual basis, the IRA’s became the way to set aside pre-tax dollars for retirement.  Later enhancements created the ROTH IRA. 
The 401K program is not without it’s problems.  The intent or purpose of this video is to provide you, the consumer information about the internal working of your 401K.   I would also assume the 403b plans are quite similar in their problems.  Please take the time to view the 14 minute video from   60 Minutes   program that did an in depth study of the 401K after the 2008 market crash.  Very little has changed since the filming of this video.

Movement of the funds in both the 401K and IRA’s are highly regulated.

DO NOT move funds based on a conversation with a friend.  The Penalties can be devastating.

401 K

As an employee leaves the current employer, they generally need to take their 401K and move it to a IRA.  Seldom does the new employer’s plan allow transferring other 401’s into their plan.  This is called a Roll Over.  THERE ARE VERY SPECIFIC RULES THAT YOU MUST FOLLOW.  DO NOT attempt a rollover without professional advice.  Contact us with your questions.  There are no ” Sorry,  But that was not my intent ” excuses.  Mistakes rarely can be undone, and it’s expensive to do.  

Rollover rules apply to both the 401K and an IRA.

 Please note that the IRS clarified the definition of a  “Rollover”  to mean only 1 rollover per 365 day period applying to all of your IRA’s in total.   A  ROLLOVER is when you take physical possession of the funds and plan to return it back to the IRA or move it to another IRA.  A second rollover is considered as a distribution and taxes are due on it.  You are still allowed to do as many direct transfers as you wish.  Trustee to Trustee.  This ruling does not apply to a ROTH IRA however, which are working with after tax dollars.


If you are in the position of maxing out your contributions for either a 401K or IRA,  Annuities or Life Insurance can be a great option for you. Both have preferred tax treatment available.  Using after tax dollars, like the Roth, you can fund either insurance.

With either an Annuity or Life Insurance, several things will happen.   Going into retirement, you may take withdrawals from the insurance policy on a tax free basis. Annuities are allowed to grow without taxation until funds are removed. You control when that will happen.  May be a source of funding for any type of Long Term Care.  See the page for Long Term Care.   When ever needed, if a form of confined care is needed, a large portion of the face value of Life Insurance may be utilized to pay for it.   A true win / win plan for you.

As to which is best will depend upon the individual.  Anticipating a higher or lower tax bracket at retirement is a consideration.  Having said that, history shows us that most people will stay in the same tax bracket as before retirement.  If you have been very fortunate and did well with your 401 & IRA, you could easily be pushed into the next higher tax bracket.  Remember that you will also have Social Security coming in and that can be taxed up to 85% of the S/S income.   Possibly a pension that you have to take. It may be that you are forced to receive more income than you need.  This is why the planning becomes critical.   It may be necessary to draw down the 401 & IRA values early for tax purposes.


What is a IRA ?    Individual Retirement Account.   NOT a joint asset.  It is similar to a container that allows you to place inside a variety of items.  It can be stock, mutual funds, Annuities, CD’s, etc.

An IRA will have a ” Designated Beneficiary”.  You must select who will receive the IRA upon your passing.  Great care needs to be done in this matter.  If done incorrectly, it can cause a great amount of damage.  Working with a professional will eliminate problems.

The traditional IRA has been often described as a Tax Bomb.  At age 70 1/2 you are required to start distributions.  For some this may be welcome money.  For  others it may be unwanted due to being pushed into a higher tax bracket.  Either way, you will pay more in taxes.

Something new is a “QLAC”.   It is an annuity that allows you to postpone the distributions until age 85, for an amount up to $125,000.

Both IRA’s and 401K’s  are ideally suited for for rollover to Annuities as the money is safe from any losses while still getting a good rate of return.    You can create your own Lifetime Pension if desired.  Being retirement funds, it is recommended for the security of your funds.



The ROTH IRA offers tremendous benefits to you and your heirs.  1st is that you are not required to take deductions.  Keeping you in control of your income.  If you have your grandchildren as the beneficiary, the required payout is over their lifetime.  Then the growth should exceed the payouts for the lifetime.  A wonderful Tax Free legacy to pass on.  

If you have several persons that you want as the beneficiary to your IRA (S),

some care needs to be done in setting them up correctly.  

Taxation –

Both the 401 and the IRA are funded with PRE-tax dollars.  That means the government has not yet received their tax dollars generated by your efforts.  For obvious reasons, they hope you do extremely well.  They are your silent partner in growth until you reach the age of 70 1/2.  Then they want their money that you have done so well to accumulate.

That is one reason we recommend distributing at age 60.  Pay the smaller amount of tax now and let it grow Tax Free in a ROTH IRA or Life Insurance.  Both allow you to take monies out or transfer tax free.


Playing with the numbers – 

Consider if you had $100,000 in an IRA and paid Tax of $ 25,000.  Remember you only own 75% of what you have in a 25% bracket.   The growth is there for both you and the Tax Man.  The restrictions however are removed with the ROTH.  Putting you back in control of your destiny.  

Take that $75,000 into a Life Insurance.  Keep in mind this is only a sample illustration to illustrate the magnitude of growth available.  The sample client is a Male and Female, age 60 and in reasonably good health.  Actual numbers will vary somewhat, but these are close enough to convey the idea.

Another option for the unwanted distributions is to purchase Life Insurance.  The first and most obvious benefit is that you can pass a greater sum to your heirs.  The IRA when transferred to your heirs, the taxes are due upon receipt.   The life insurance is used to maximize benefit to the heirs.  Paying any taxes due and giving them the full value of their inheritance.

So – Taking the $75,000 for a Male provides a Face value of $212,411.

  For a Female, the face value would be $ 238,147.

TAX FREE Dollars

If left in the IRA.  You would need to increase $75,000 BY ADDING 183.21 PERCENT TO HAVE $212,411.     AFTER TAX DOLLARS !    REMEMBER THAT IS ON DAY ONE AFTER APPLYING FOR THE INSURANCE.  Take $75,000 & add 183.21 %.  WHERE ELSE CAN YOU RECEIVE A 183.21% INCREASE WITH YOUR SIGNATURE ?   Also if it’s  still in the IRA, you need to add back in the amount of tax.. Think 39%  $212,411 + 39% tax = $ 295,251 to attain equivalent market increase.  Then the time factor of signing the application vs waiting for years of growth in the market.

 tax free income 401k IRA's  The formula used:
Working out the problem by hand we get
  1. [(212,411 - 75,000)/75,000] *100
  2. (137,411/75000) * 100
  3. 1.8321466 * 100
  4. 183.21 percent increase. ( source: https://www.omnicalculator.com/math/percentage-increase )

The Bottom Line –

Having either a 401K or an IRA  will benefit you towards retirement funding.  Both provide immediate tax benefits.  But both can create a tax nightmare later in life.  The IRS is not forgiving when you make  mistake.  It can be very expensive just in the terms of only money.   Planning today for the future is in your best interests.  Your future planning was to have a 401 or IRA.  Now plan to maximize what you have.


Making money      Annuities      401K IRA      Life Insurance      Social Security