Pension Catapult · Retirement Tax Minimization Strategy
You’ve won the retirement game. Don’t let the IRS take the last move.
Every dollar you withdraw from an IRA or qualified plan is taxed as ordinary income. Required minimum distributions force withdrawals whether you need them or not, and your heirs inherit the same tax burden, often compressed into a 10-year window under the SECURE Act. Remain’s Pension Catapult Strategy, a Retirement Tax Minimization Strategy (RTMS), uses plan assets to buy a life insurance policy that is later moved out of the plan to a trust. In a sample case, $4M of plan assets supports a policy with a death benefit of about $13M.
Begin a conversation →How the structure comes together.
A qualified plan buys a life insurance policy, and the policy is later moved out of the plan to a trust. The purchase and transfer are governed by DOL PTE 92-6 and IRS Rev. Proc. 2005-25.
The plan buys a life insurance policy.
IRA or prior plan assets roll into a qualified plan sponsored by your business. A direct rollover between eligible plans is not a taxable event. The plan then buys a cash value life insurance policy on you with plan assets that have not yet been taxed. The share of plan assets that may go to premiums is limited by the IRS incidental benefit rules.
- Direct rollover into a business-sponsored plan
- Plan pays the premiums with pre-tax assets
- Premiums limited by the incidental benefit rules
The policy leaves the plan at fair market value.
The plan either sells the policy to you or to a trust under DOL PTE 92-6, or distributes it to you. A sale requires payment of the policy’s fair market value to the plan. A distribution is taxed to you as ordinary income at the policy’s fair market value, determined under Rev. Proc. 2005-25. Moving the policy out of the plan is not tax-free.
- Sale to a trust, or distribution to you
- Fair market value set under Rev. Proc. 2005-25
- A distribution is taxable; a sale must be paid for
A trust owns and funds the policy.
Liquid assets outside the plan, typically $500K or more, are gifted or loaned to an irrevocable trust, which pays the purchase price and later premiums. The death benefit generally passes free of federal income tax under IRC §101(a), provided the transfer-for-value rules are satisfied. It can be excluded from your taxable estate when the trust is properly structured and you hold no incidents of ownership.
- Outside assets gifted or loaned to the trust
- Death benefit generally income-tax-free
- Estate exclusion depends on trust structure
Pension Catapult fits the owner who has already won.
Pension Catapult is for people whose qualified plan assets are excess to their retirement income needs — who want those assets to multiply for the next generation instead of eroding under forced distributions.
- i. You’re a business owner between 55 and 72 with a SEP-IRA, solo 401(k), or defined benefit plan that has grown well beyond what you’ll ever spend in retirement.
- ii. You’re a corporate executive with a large 401(k) or pension balance, substantial outside investments, and growing concern about the tax burden your heirs will face.
- iii. You’ve inherited a large IRA and face the SECURE Act 10-year distribution window — a compressed, forced taxable event you’d like to blunt.
- iv. You have at least $1M in qualified plan assets, $500K in outside liquid assets, and a sponsoring business entity — the three structural prerequisites.
Four converging pressures. A narrowing window.
Four forces shape the timing. One is a fixed date on your own calendar; the others are set by Congress and can move.
RMDs Begin at 73 or 75
Required minimum distributions force you to withdraw — and pay ordinary income tax on — a growing percentage of your plan every year, whether you need the money or not. The window to reposition before RMDs begin is finite and closes on a specific birthday.
Tax Rates Are Historically Low
Today’s individual income tax rates are low by historical standards, and no rate schedule is guaranteed to last. Repositioning while rates are low settles the tax cost of the transfer under rules you can see, instead of leaving it to whatever applies when your heirs withdraw.
Estate Exemptions Can Change
The federal estate tax exemption is historically high, but it is set by Congress and has been raised and lowered many times. A policy held in a properly structured trust sits outside the taxable estate regardless of where the exemption lands.
The SECURE Act 10-Year Window
Under the SECURE Act, most non-spouse beneficiaries must fully distribute an inherited IRA within ten years. Without a strategy, this creates a compressed tax event that forces heirs into higher brackets. Plan assets that leave the plan as a policy are outside that window.
Common questions.
What is Pension Catapult?
Pension Catapult is Remain’s name for a Retirement Tax Minimization Strategy. A qualified retirement plan buys a cash value life insurance policy on the participant, and the policy is later moved out of the plan, by sale or distribution at fair market value, to the participant or a trust. Held in a properly structured trust, the death benefit can pass to heirs free of income tax and outside the taxable estate.
Is moving the policy out of the plan tax-free?
No. If the plan distributes the policy to you, its fair market value is taxed as ordinary income. If a trust buys the policy from the plan, the trust must pay fair market value. The IRS examines how policies are valued when they leave a qualified plan, so the strategy must be reviewed by your tax counsel and the plan’s third-party administrator before it is implemented.
What is the legal authority?
The strategy relies on DOL Prohibited Transaction Exemption 92-6, as amended, and Revenue Procedure 2005-25, which together permit the purchase and transfer of life insurance contracts within qualified plans at the policy’s fair market value. Clean design, a qualified plan administrator, and coordination with your CPA and estate attorney keep the structure well inside the lines.
Who is a good candidate?
The strongest fit is a business owner age 55 to 72 with at least $1M in an IRA or qualified plan that is excess to retirement income needs, at least $500K in outside liquid assets, and a business entity that can sponsor the plan. Corporate executives with large 401(k) balances and inherited IRA holders facing the SECURE Act 10-year window are also strong candidates.
Why is a business entity required?
The strategy routes assets through a qualified defined contribution plan, which requires an employer sponsor. If you own a business entity — LLC, S-Corp, or C-Corp — that entity becomes the plan sponsor. Without an entity, the structural anchor for the strategy does not exist.
Why act before required minimum distributions begin?
Required minimum distributions begin at age 73 (75 if you were born in 1960 or later) and force taxable withdrawals whether you need the income or not. Executing the repositioning before RMDs begin preserves optionality on the plan assets and starts the life insurance funding in the years when you still control the timing of distributions.
What illustrative economics do you typically see?
For a representative 63-year-old with a $4M qualified plan and $1.66M in outside liquid assets, a five-pay premium of roughly $800K inside the plan can support a death benefit near $13.3M. This is a hypothetical sample, not a projection or a guarantee. Results depend on your health, the policy design, the policy’s fair market value at transfer, and the tax due on the transfer.
See what your plan could become.
A Pension Catapult feasibility review models the repositioning for your specific age, health, plan balance, business entity, and outside asset position — so you can see the exact after-tax legacy difference before you commit to anything. Coordinated with your CPA and estate attorney. Complimentary. No obligation.
Begin a conversation with a Remain advisor.
This page is general information, not tax, legal, or investment advice. Dollar figures are illustrative only and will vary with age, health, carrier, product, and current illustration rates. Please consult your own CPA and attorney before adopting any structure discussed here.