What is a rich man's roth ira?

Despite the nickname, the Roth “rich person” is not a retirement account at all. Instead, it's a cash-value life insurance policy that offers tax-free earnings on investments, as well as tax-free withdrawals. Permanent life insurance can also be used as a tax-free income generator. Every premium paid generates dividends and interest.

As that money grows and accumulates over time, you end up with savings in cash value. This cash value can be converted into a tax-exempt source of income for life (all growth within the policy is tax-free) with distribution rates of up to 6 to 7%. In addition to a Roth IRA and municipal bonds, tax-free income is hard to come by. Tax-free income that also pays a death benefit to beneficiaries is a win-win for everyone.

The legislation would have prohibited the transfer of after-tax contributions from traditional IRAs to Roth IRAs after December. In recent decades, with the arrival of the Roth IRA and the easing of restrictions on IRA renewals, ultra-wealthy Americans have reportedly created tax-protected accounts worth many millions or even billions of dollars. With a clandestine Roth IRA, a person whose income is too high to qualify for a Roth IRA first opens a traditional IRA (for which there are no income limits) and then converts that account into a Roth IRA. Since contributions to the Roth IRA account are made with after-tax dollars (unlike the traditional IRA), the funds in that account are tax-free.