Using Life Insurance to Offset Taxes and Power a Charitable Legacy

By Brandon Cochran, Charitable Planning Specialist, New York Life Insurance Company

When Congress passed the SECURE Act (2019) and later SECURE 2.0 (2022), it reshaped how families inherit retirement accounts. For many people, IRAs and 401(k)s are their largest assets — yet the rules have eliminated the “lifetime stretch” for most non-spouse heirs, and now requires most heirs to empty inherited accounts within 10 years, often triggering higher tax brackets and shrinking what loved ones ultimately receive. With thoughtful planning, you can turn this challenge into an opportunity — protecting your family while making a meaningful charitable impact. Whole life insurance can play a pivotal role.

The SECURE Act’s 10-Year Rule, in Brief

• Most non-spouse beneficiaries must fully distribute inherited qualified accounts within 10 years. Only certain beneficiaries may still stretch distributions over their lifetime:
  
  
  • Surviving spouse of the IRA owner;
  • Minor child of the IRA owner (but must liquidate IRA within 10 years upon reaching age of maturity);
  • Certain disabled or chronically ill beneficiaries; and
  • Beneficiaries less than 10 years younger than the IRA owner.
• Distributions are taxed as ordinary income, potentially pushing heirs into higher brackets.


• The “stretch IRA” strategy is largely off the table for most beneficiaries.

A Strategic Response: Repositioning with Whole Life Insurance

Instead of leaving heirs a large, fully taxable IRA, consider gradually taking distributions during your lifetime (or as part of a broader retirement income strategy) and repositioning those after-tax dollars into a whole life insurance policy. This can create a generally tax-free benefit for beneficiaries, provide guaranteed cash value and access during your lifetime, and convert a future taxable inheritance into tax-efficient legacy value.

Pairing Philanthropy with Family Protection

Whole life insurance can amplify your charitable goals while preserving family wealth:

1. Name a charity as beneficiary
   Designate part or all of a policy’s death benefit to a qualified nonprofit. The charity receives the proceeds income-tax free.


2. Gift the policy during life
   You may transfer ownership of a new or existing policy to a charity. Ongoing premium gifts to the charity may be eligible for income tax deductions (subject to limits and guidance from your tax advisor).


3. Wealth Replacement Strategy
   • Leave taxable IRA dollars to charity (which pays no income tax), and
   • Use a whole life policy to replace the IRA value with an income-tax-free death benefit for heirs.
   • The result: more to charity, and your family’s inheritance is preserved.

Example: Turning Taxes into Impact

A couple in their late 60s holds a $1.2M traditional IRA and cares deeply about cardiovascular research. Rather than leaving the full IRA to their children (who would face the 10-year rule and potentially hundreds of thousands in income tax), they can allocate a portion of the IRA to charity and use planned IRA withdrawals to fund a whole life policy for their heirs. The outcome? The charity receives a significant, tax-free gift. Their children receive a tax-free life insurance benefit. The couple gains flexibility and confidence during retirement.

SECURE Act Solution: Life Insurance + Charitable Remainder Trust (CRT)

For larger estates or highly appreciated assets, funding a CRT can provide income to you or your heirs for life or a term of years, with the remainder going to charity. A separate whole life policy can replace the gifted value for your heirs, balancing impact and inheritance. The CRT can be funded during one’s lifetime providing an immediate income stream plus an income tax deduction. Also consider that a CRT can be established at death through one’s estate plan — this is called a testamentary CRT. A testamentary CRT may be a great strategy for solving the SECURE Act’s 10-year rule by naming a CRT as a primary beneficiary of an IRA. Then name the non-spouse heirs (e.g. children or grandchildren) as income beneficiaries of the CRT thereby creating a lifetime stretch of income for those beneficiaries which would not otherwise be available if those heirs inherited the IRA directly.

Bottom Line

The SECURE Act changed the rules — but with proactive planning, you can still protect your family and create a legacy that reflects your values. Whole life insurance can be the bridge between tax-heavy retirement assets and tax-efficient, purpose-driven outcomes.

About the Author

Brandon Cochran
Charitable Planning Specialist, New York Life Insurance Company

Brandon Cochran is a financial services professional whose practice centers on charitable legacy planning and strategic guidance for nonprofits. He is actively involved with the American Heart Association in Kentucky, where he shares his experience as a 2022 heart transplant recipient to support advocacy, education, and community outreach.