Question:
❓Which of these is usually the most effective tool for transferring wealth to the next generation?
A) 401(k)
B) Brokerage account
C) Life insurance
D) 529 college plan
Answer:
✅ C) Life insurance
Here’s why:
life insurance is meant for this.
The money goes straight to your family, usually tax-free, and doesn’t get tied up in court. It shows up right when they need it most and creates a legacy whether you’ve saved for 30 years or not.
The others?
They have their place, but not for passing wealth:
- 401(k): Great while you’re alive and saving for retirement. But when your kids inherit it, they usually have to empty it within 10 years — and pay taxes along the way. That shrinks fast.
- Brokerage account: Heirs get a tax break with the step-up in basis, but the account is tied to the market. If it’s down when you pass, so is what they get.
- 529 plan: Perfect for education, but that’s it. If your family needs the money for something else, they’re stuck with penalties.
